Surprise US Discount Rate Cut

The markets have taken this move as a positive step, but this may prove to be a knee-jerk rally. This looks like a U-turn from the Federal Reserve, which only a few days ago suggested it was not too concerned about the credit squeeze.

The market turbulence has forced the Fed’s hand here, and whilst an emergency cut might give the markets some temporary relief, some might say there is a sense of panic coming from the Fed.  An emergency cut such as this may have worked to calm markets in previous times of turmoil such as after 9/11, but this time it could prove counter-productive.