Fed Rate Cut has Small Effect

On Tuesday, the Federal Reserve Bank lowered its benchmark federal funds rate by 75 basis points, its sharpest cut in decades. The markets initially reacted positively to the move, which was intended to shore up sagging confidence in the economy and financial markets. But the next day, most of the gains had been lost, as investors feared both that the recession has already begun and that the Fed is giving up on fighting inflation to battle the lost cause of the economy. In fact, as many analysts feel a recession is a foregone conclusion, the focus may soon turn to inflation, especially given exploding commodity prices and the sagging dollar. The New York Times reports:

"I'm disappointed," said an economist at Citigroup. "It's not as if we're trying to gauge policy priorities on a sunny day. I'd like to know how you're going to get inflation in an environment with suffocating financial restraint and pervasive slowing in demand."