Some historical perspective with which to view Wednesday's half-percent rate cut.
The New York Fed has a handy chart detailing changes in the federal funds rate from 1971 onward. From 1971 to 1991, the fed funds rate never fell below 4 percent (and for many years, was much, much higher, as Paul Volcker battled the inflation monster). During the Clinton years it ranged between 3 and 6 1/2 percent. But during the tenure of George W. Bush the rate targeted by the Fed rarely broke 5 percent, and, back in the summer of 2003, dropped all the way down to 1 percent, for an entire year.
On Wednesday, the Federal Reserve cut interest rates again, all the way back down to 1 percent. As a de facto admission that the U.S. faces tough economic times ahead, it's hard to do better than that. Inflation is no longer considered a problem.
The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.
OK, we kind of knew that. But historically speaking, what can we make of the latest news? Seems to me, for most of the last 40 years, money has never been cheaper than during the administration of George W. Bush.
And look where that got us.
UPDATE: As for the market's reaction? Schizophrenic to the extreme. First it dropped, then rose steadily, then dropped again, until with about an hour to go before closing the Dow rocketed up around 250 points before plummeting even more speedily in the last few minutes. The Dow closed down 86.18. The chart at Google Finance is entertaining.