Traders are relaxing slightly this evening as stock markets perked up, following a surprise move by the US Federal Reserve in which it cut its primary rate of interest. The move was implemented with the intention of calming nervous global markets, shaken by the US subprime crisis. Markets have been weighed down by huge doubts which saw global share prices plummeting in the preceding weeks. Credit restrictions have jeopardized global market stability in the aftermath of the US subprime crisis. The US Fed cited fears of ‘restrained economic growth’ as reasons behind its dramatic intervention.
The 50 basis point rate cut affects Fed loans to banks, and resulted in the interest rate falling from 6.25% to 5.75%. Already the effects of the rate cut have rippled through financial markets. European markets have seen some positive effects already, with Europe’s FTSE Eurofirst up 1.7% and Britain’s FTSE 100 up 2%.
The US Fed also said that it was ‘monitoring’ market conditions and that it may intervene further if required. Meanwhile long-term investors remain unfazed, maintaining their position that signs are boding well for the future, while governments across Europe are quick to point out that this is a ‘market correction’ and not a ‘market crash’. Many feel that this market correction should present them with good buying opportunities in the near future.