Fed Changes The Game


No doubt that Tuesday’s Fed decision will likely go down in history. But how will it be remembered?

At the conclusion of their two day meeting the Federal Reserve slashed the target for a key interest rate to the lowest level on record.

The central bank reduced the federal funds rate (the interest that banks charge each other) to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October.

With the Fed's key rate now essentially zero, the central bank is moving into uncharted territory.

"The Fed had signaled it was going to cross the line and it did," says CNBC's Steve Liesman. It says to me that the Fed will do what needs to be done to return the normal functioning of markets."

Rate cuts are thought to be the Fed’s most powerful weapon in the fight to stimulate the economy but you can’t get lower than zero. That leaves some investors worried that the Fed now has its hands tied.

According to Fed Chairman Ben Bernanke that isn’t the case. He says the Fed isn't running out of ammunition to fight the worst financial crisis since the 1930s.

Bernanke and his colleagues are pledging to use "all available tools". Those “other tools” include buying large quantities of mortgage-related debt and possibly buying long-term Treasury securities.

“If the world moves away from Tresuries it would be a positive development,” adds CNBC’s Steve Liesman. “The end result is that the world would probably buy more stocks.”

What do you think? Tell us now!

For more on Tuesday’s historic Fed decision please watch our video with CNBC Sr. Economic reporter Steve Liesman.

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Trader disclosure: On Dec. 16th, 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), (DIS), (MCD); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (MSFT), (PM), (MO); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (USO); Seymour Owns (AAPL), (BAC), (EEM), (F), (GE), (INTC), (MER), (SSL); Seygem Asset Management Owns (CHL)

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