Wall Street soars after Fed cuts rate – Dow Jones average takes 233-point jump
The Fed ‘ which had resisted lowering rates despite weeks of market volatility, and instead added nearly $120 billion in liquidity into the banking system ‘ cut its discount rate to 5.75 percent from 6.25 percent. The central bank acknowledged that the stock market turbulence that has pulled the Dow by hundreds of points a day was posing a risk to economic growth.
‘People were kind of baiting the Fed into doing something, and finally they did,’ said Philip Dow, managing director of equity trading at RBC Dain Rauscher. ‘The playground monitor finally showed up, and it showed someone cares and someone is bringing rationality into the market.’
But the central bank made no mention of lowering its target for the federal funds rate, which has stood at 5.25 percent for more than a year. The fed funds rate determines the rates that banks charge each other, while the discount rate only covers loans the Fed makes to banks. Many strategists believe the market won’t settle down until the Fed lowers the fed funds rate target, considered a more significant benchmark.
If the market doesn’t get that rate cut, Friday’s gains may not stick, especially since it’s likely there will be plenty more news in the coming days and weeks of further troubles in the lending industry. Any mention of problems at subprime lenders or funds that invested in mortgages has sent stocks skidding, and so have worries that tighter credit will stanch the flood of takeovers, which sent Wall Street to new highs earlier this year.
Still, the Fed made it clear this wasn’t the only step it would take if the volatility continued. In its statement, the Fed said it ‘is prepared to act as needed.’
The Dow Jones industrial average surged 233.30, or 1.82 percent, to 13,079.08.
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LOS ANGELES (AP) ‘ Countrywide Financial Corp., the nation’s largest mortgage lender, revealed it had borrowed $11.5 billion from a group of 40 banks to fund loans in a move that shows just how deep the lending crisis has become.
Countrywide made the move amid a credit crunch that has driven a number of its smaller peers to bankruptcy.
Countrywide shares fell $5.14, or more than 24 percent, to $16.15 in afternoon trading. The stock has lost more than half its value since January.
The credit worries have grown as the secondary market for mortgages all but disappeared in recent weeks. Investors have worried about the value of loans and rising delinquencies and defaults.
Mortgage lenders rely on the secondary markets to borrow money to make more loans. The problems started as subprime mortgages ‘ loans given to customers with poor credit history ‘ started going delinquent and defaulting at faster rates.