Rate cuts staunch market losses

North America’s central banks have moved to curb the panic that gripping equity markets, with the U.S. Federal Reserve slashing its key rate by 75 basis points, the biggest single rate cut in 23 years.

The U.S. federal funds rate now stands at 3.5%, while the discount rate now stands at 4%.

The U.S. rate cut came earlier than expected, and the Bank of Canada had already issued its own rate cut decision to reporters in the BoC lockup. Canadian rates came down 25 basis points to 4%.

The rate cuts appear to be having the desired effect early on, as the major U.S. indices fell, but no where near as far as global market had fallen on Monday. By 10:30 a.m., the Dow Jones Industrial average was off just 1.35%, or 163 points, to 11,935.67. The S&P 500 also slipped, shedding 1.62%, while the Nasdaq was off 2.18%.

On any other day those losses may appear significant, but considering European indices dropped up to 8% on Monday, American markets have held up well on their first day back from the long weekend.

In Toronto, the S&P/TSX Composite Index has bounced back with a gain of 300 points or 2.5%.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com