The Fed’s surprise rate cut of 75 basis points stunned investors on Tuesday.  Coming on the heels of an overseas sell off when Wall Street was closed for trading on Monday, it still couldn’t stop the market from falling sharply as investors worried that this move only confirms their worst fears, that a recession is on the horizon.

After taking a couple of days to digest the move the market rebounded with financial stocks leading the way.  On early trading yesterday the Dow Jones was down over 300 points before making a 600 point rally to finish the day up 300.  The rebound may have taken longer to materialize due to the troubling news on the tech front as both Apple and Motorola are expecting lower earnings this year. 

There is still concern though because European Central Banks are not following suit with their own rate cut.  You can expect exchange rates to fall even further in the near future because of the imbalalance in interest rates.

Is this a panic move by the Fed?

I don’t believe so, one would think they would have made the move anyway after their regularly scheduled meeting later this week.  However, due to turbulence in the global markets they must have felt that initiating the rate cut early would help mute its effects.

I believe it was a smart move on the Fed’s part.  If they had waited until after the meetings, who knows how much the market would be down by then.  At that point many would have considered the 75 basis point cut as a panic move.