Fed cuts rates 75 bps

Fed cut the Fed funds rates by 75 after an emergency meeting. Will this do the trick of changing the bear market? Unlikely. At best, it will curtail the current steep decline. Lowering rates does not change the credit crisis situation, change earnings growth, or make consumers feel more confident. Defaults and foreclosures will still grow in the near-term regardless of how much easing. In the statement from the Fed, no mention was made of the equity sell-off rather the focus was on economic growth, “a weakening of the economic outlook and increasing downside risks to growth”. The Fed was also not able to get a complete consensus with Bill Poole of the St. Louis Fed voting against the move.

The pictures are of Chairman Bernanke last week before Congress. Imagine how he must feel this morning. The issue is whether this decline is a liquidity event or a economic event. Monetary policy is not effective at changing the course of markets regardless of what happened with Alan Greenspan in 1987.