Will The Historic Move By Central Banks Work?


For the first time in history, central banks around the world including our own Fed slashed interest rates in tandem with one another.

Here in the US, the Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent.

The central banks of China, Canada, Sweden, and Switzerland also cut rates. The Bank of Japan said it strongly supported the actions.

”This is significant event that I think we’ll remember for the rest of our lives. It’s unprecedented,” says former Fed Governor and Bear Stearns economist Wayne Angell.

Despite these actions investors remained less than enthusiastic about the immediate future of stocks. Overseas markets tumbled while in America prices seesawed but finally the Dow also closed in negative territory.

The lackluster response left investors somewhat frustrated and fueled speculation that governments will have to do even more to tackle the credit crisis. "I just think that there's a sense that they keep running out of bullets," says Jim Paulson of Wells Capital Management.

Here’s the deal. "Chairman Bernanke led Jean-Claude Trichet and the other central banks in lowering the rates,” explains Angell on Fast Money. "That means he understands we have a greater deflation risk than inflation risk. Bernanke seems likely to lower the funds rate until investors decide the rate of return on cash is too small."

"We have an unprecedented coordination of central bank policy,” adds Angell. With money this available and the rate of return so small people will go out and buy stocks.”

So to tie it all up. Will the historic move by central banks work? Looks like the answer is, hopefully.


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Trader disclosure: On Oct.8, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT), (BNI), (MCD): Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (FCX) Call Spread; Najarian Owns (GS) Call Spread; Najarian Owns (MS), Owns (MS) Puts, Is Short (MS) Calls; Najarian Owns (NOK) And Is Short (NOK) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (WB) Calls; Najarian Owns (XLF) Call Spread; Najarian Owns (IWM) Puts; Finerman Owns (GS); Finerman's Firm Owns (MSFT), (NOK), (DEO), (PM), (MO); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (COF), (BBT), (USO)

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