The Dow Jones industrial average fell 238 points to close at 9721, its lowest level in two years. The Nasdaq Composite index fell 94 points to 1857, its lowest in two and a half years. Most economists advising the traders expected exactly the rate cut they got. When they didn't get more, they felt slighted and started selling shares. If he offered three-quarters of a point, Wall Street would have thought he was panicking and would have panicked in turn.
Unruly children are, in the long run, better off when they are given strict, well-defined limits.
The Fed, like the rest of us, can't help but notice the reaction on Wall Street, try as it might to look away and concentrate on the real economy. If real weaknesses continue, the Fed indicated it might cut rates again soon. The associated backup in inventories has induced a rapid response in manufacturing output and, with spending having firmed a bit since last year, inventory adjustment appears to be well underway. The Fed's statement indicates its view that the worst may be past. In these circumstances, when the economic situation could be evolving rapidly, the Federal Reserve will need to monitor developments closely.