Fed Panics

Markets were closed in the US to celebrate Martin Luther King's birthday, but they were busy around the world. In Asia and India in particular, the electronic stock markets were crashing. The futures trading on the Dow Jones Industrial Index indicated that the "Dow" could be trading as much as 650 points lower when the US markets resumed trading on Monday. Tipped off by the worsening economic indicators and a US7.2 billion fraud case in France, the voting members of the FOMC (Federal Open Market Committee) held an emergency teleconference on Monday night. In the morning, before the markets opened, they released a statement that the Federal Reserve would cut its overnight lending rate by 75 basis points to 3.50%, citing continuing credit problems and GLOBAL PANIC (not). When 9:30AM came about, the traders at the New York Fed went to work buying up bonds, thus injecting money into the banking system and thereby adjusting the Fed Funds interest rate down to the target of 3.5%.