Economic Insights

US Stocks Jump Higher As Fed Slashes
December 16th, 2008 2:57 PM
U.S. stocks bounced as the Federal Reserve slashed its target rate to a historic low to combat a deepening recession, fueling a surge in big financial firms including JPMorgan Chase and Citigroup.

The Federal Open Market Committee voted unanimously to reduce the target fed-funds rate for interbank lending from 1% to a range of zero to 0.25%, the lowest since the Fed started publishing the funds target in 1990. The Fed also said it will keep rates "exceptionally low" for some time amid rapidly waning price pressures. Economists had expected a smaller cut of 0.5 percentage point, and hadn't envisioned the Fed setting a range.

Stocks traded higher for much of the day and popped higher after the Fed's decision was made public. Recently, the Dow Jones Industrial Average gained 234 points, or 2.7%, to 8798, while the Standard & Poor's 500 rose 27, or 3.2%, to 892. The Nasdaq Composite increased 51, or 3.4%, to 1561.

"This is evidence the market has discounted the bad news and ultimately this should break the credit crunch and create an area we can move out of," said Kent Engelke, chief economic strategist at Capitol Securities Management.

Shares of JPMorgan recently gained 8%, while Citi rose 6%. The Financial Select Sector SPDR Fund jumped 5.8%.

The dollar fell sharply following the Fed announcement.

Posted by Heath Lefort - Personal Financial Advisor on December 16th, 2008 2:57 PMPost a Comment (0)

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