Fed Slashes Rates by 1/2%.

The Federal Reserve did what was expected, and no more, cutting interest rates by a half-point to 1%.

That produced a bit of disappointment among equity investors who were hoping for a more dramatic move from the Fed governors. Stocks dropped, quickly rebounded, and then headed lower again.

In its statement, the Fed threw in with the idea that the economy is receding, saying that the “pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” also pointing out that “the intensification of financial market turmoil is likely to exert additional restraint on spending.”

Gone were references to high inflation, which remained even in the September 16 release, when the Fed elected to leave rates unchanged at 2%. Now, the Fed sees inflation moderating, owing to weak economic growth.

Of course, the effective federal-funds has been below 1% on a daily basis for the past two weeks and if market conditions warrant aggressive open-market operations from the Fed, this new target will be ignored as well.

With all the othe stimulus packages that have been put in place one has to wonder if the Fed is soon running out of ammo if it can;t get things in the economy and credit markets moving again. 

Could they slash it to ZERO as Japan did?