Fed Cuts Rate Second Time This Month

WASHINGTON, DC-For the fifth time since last September, the Federal Reserve Bank’s Open Market Committee has taken a whack to the federal funds rate–the interest rate that banks charge each other–again, by a half percentage point, to 3%. The Fed has been steadily trimming its target for the federal funds rate for the last several months, from a high of 4.8% in the fall, including a surprise cut last Monday of not only the federal funds rate but also the discount rate. Both dropped by three-quarters of a percentage point, to 3.5% and 4%, respectively.

It was widely expected that Federal Reserve chairman Ben Bernanke would continue to trim away at the rates at regularly scheduled meeting, held yesterday. Then the worries started. Victor Sperandeo, a principal of Enhanced Alpha Management in New York City, tells GlobeSt.com that one theory was that the Fed had reacted to unusual volatility in the market last Monday, which turned out to be due to Societe Generale’s $7.3-billion losing position on European share prices thanks to the actions of a rogue trader. “The market [was] looking for one half of a percent further cut,” he says.