Bernake & the Fed Slash both Fed Funds Rate and Discount Rate by 1/2 point

Big News! Good News! Surprising News!

A rate cut was expected today, but the aggressive .50% rate in both the Federal Funds Rate and the Discount Rate surprised many, including myself.

The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, this is the first Fed rate cut in four years!

In a statement the Fed says,

“Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.”

In an article at CNNMoney.com, Alan  Skrainka, chief market strategist with Edward Jones .

“We’re having champagne and cookies,” Skrainka said. “This is not a magical elixir that solves our subprime problems overnight, but it is a big step in the right direction to keep the economy growing. The Fed is sending a strong message that it won’t get behind the curve,” he added.

Shortly after the announcement, the Dow gained nearly 250 points, with the S&P 500 and Nasdaq both shooting up more than 2 percent. The last I looked Home Builders that are publicly traded where up and mortgage lending companies like Countrywide and Wells Fargo went up.

I have talked in past the housing market in Madison is slowing more on psychological reasons, instead of a fundamental reasons. This will probably help many buyers that are sitting on the fence start get more serious.

A message to Home Sellers: Take a page from the Federal Reserve book. They didn’t cut .25% and try to chase the market. They got in front of the market with a .50% rate cute. Are you pricing your home and chasing the market of buyers or are you getting out in front of the pricing correction?

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