Knock-On Effects
Issue: 10/31/07 Wednesday
The Feds cut the Fed Funds rate by 0.25% today, and it is now at 4.5%. The means the prime rate for most (or all) banks is now 6.5%, and the interest rate charged on credit cards should be coming down a little. Also, bank interest rates, CD rates, etc. should be coming down too.
The stock market soared with the Dow going up 138 points. Bond interest rates went up a large 0.09%, and this seems counterintuitive until you realize that the players in the bond market had pushed down rates prior to the Fed Funds rate lower than they needed to be in case the Fed reduced more than 0.25%.
However, the Fed (being the Fed) also said that no one should think that future interest rate cuts are assured because inflationary pressures are still working within our economy. (That’s what makes a market – some people think it will go up, and some people think it will down.)
Now is the time for you to know what knock-on effects this reduction in interest rate will have. The first knock-on effect is that lower US interest rates mean that foreign investments in US bonds are much less attractive than they were yesterday because European rates are starting to be greater. That means people will NOT be investing in the
So, we saw oil jump $4.15 today to a new high – and the excuse was a shortage of supply and a reduction in the Fed Funds rate.
Gold jumped up to a new recent high too. There’s no stopping this commodity.
Here are Wednesday’s closing details:
DJ30 – 13,930 (Up 138 points)
10 year US Treasury Bond – 4.48% (Up 0.09%)
Euro 1.4463 – a new high
Gold closed at $796 per ounce. (Up 
- A new current high.
Oil Closed at $94.53 (Up 4.15)
Gasoline is $2.34 (Up 0.09)
