Money Minute: Dow Soars on Fed Rate Cut

Associated Press

Transcript

AP Money Minute. Investors didn't even wait for word from the Federal Reserve. The Dow shot up at the opening bell, more than 300 points higher at its peak. Then, when the US Central Bank slashed a key interest rate 3/4 of a point, the blue chips backed off some before then resuming the rally. The Federal Funds rate now stands at 2 and a/4%. That's the interest banks charge each other to loan money. The lower it is ideally, the less money it costs consumers and businesses to borrow. Some good news from the financial sector. Goldman Sachs, the world's largest investment bank, was able to offset its mortgage related and credit losses with commodity investments. The company earned $ 8.3 billion in the first quarter. That was $4 billion below year ago levels. And finally, Delta will offer buyouts to 30,000 employees, more than half its workforce. The company hopes to trim its payroll by at least 2,000 to counter rising fuel costs. Delta is thought to still be negotiating a possible merger with Northwest, a move that would create the world's largest airline. I'm Mark Hamri with AP Money Minute.

Investors fear a recession

CNN

Transcript

They've got the biggest ax in their portfolio they're taking out today, and you can see Ben Bernanke swinging hard with that. They're going to do a full percentage point. That's what the markets are expecting. Just to put this in perspective for you, you haven't had a cut of that magnitude since the 1980s when then Paul Volcker, who was the chairman of the Fed, did a massive cut of 1.75 percentage points. So this is really, really a very, very extreme move that they're making. But is that going to be enough to restore confidence in the markets? To many people, that's going to look like firefighting, isn't it? A panic move. Well, there's another way of looking at it, too. The Fed is pulling out all the stops, and therefore they have to do everything they can to try and keep the economy from veering into a deep recession, because it is in a recession right now. So some people feel that the Fed is right to be extremely aggressive and then later to worry about the consequences of its actions. You know? It took some dramatic actions over the weekend in relationship to Bear Stearns, and also, too, in basically being the lender of last resorts to these investment banks so it tries to avoid another Bear Stearns situation. They were applauded for doing what they did. But again, this really comes down to confidence. And we've had this slashing in interest rates, and the economy still continues to get worse. People think eventually the Fed's action, you know, will pay dividends, all right? But right now, it has to do everything it can to try and show that it's going to be a good thing. And I think that's the key. Well, I think a full percentage point cut is pretty well already baked into where the dollar is at right now. The levels the dollar is at right now, certainly its weakness is going to hurt Japanese exporters, for instance, very much.