NEW YORK –stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the ‘s decision to cut interest rates by three-quarters of a percentage point. The soared 420 points, its biggest one-day point gain in more than five years.
Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank’s benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.
In its statement accompanying the rate decision, the Fed said “recent information indicates that the outlook for economic activity has weakened further,” but also that “uncertainty about the inflation outlook has increased.”
“The Fed once again in the statement showed that it is ready for further action if this were needed,” said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. “It also showed the fact that it’s still paying attention to inflation … but that it is far from being the primary concern right now. And the market knows that, and it is happy.”