The Fed cut interest rates by 75 basis points last Wednesday. Around that time there was speculation that a single rogue trader from Societe Generale, a French bank, was responsible for market volatility immediately preceding the Fed rate cut (volatility starting Friday, into Monday and Tuesday, the rogue's losses were finally announced Thursday I think). But the Fed has had time to evaluate whether that factored into their decision, but rather than indicate that in any way, they have decided to lower rates by an additional 5o basis points.
Reducing rates by 1.25% over 8 days is unprecedented. And considering that the Fed is an independent agency of the government (not under the control of Congress or the President), it is highly unlikely that they are using monetary policy for any political goal. Is it possible that officials at the Federal Reserve are looking at data-- unavailable to the public-- that suggests that we are headed for a recession that looks a lot worse than we currently imagine?
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Or, alternatively, the Fed is not as insulated from public opinion as you may think. Bernanke has been catching a lot of flak from Wall Street and it's hard to believe that all the talk has fallen entirely on deaf ears.
And, aren't low interest rates what got us into this mess in the first place?
I lean toward agreeing with you that this could be signally some rough going ahead. But I am a little more skeptical and reactionary policy gives me goosebumps. I will be excited to see what the new job numbers say.
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