Dow falls 294 points after Fed cuts rates
NEW YORK » Wall Street plunged yesterday after the Federal Reserve lowered interest rates by a quarter point, disappointing investors who hoped the central bank would move more aggressively to help the economy overcome the credit and mortgage crisis. The Dow Jones industrial average skidded more than 290 points.
Investors had been expecting policymakers would lower rates for a third straight time, though there was debate over the size of the cut. Most economists anticipated a quarter-point reduction in the benchmark federal funds rate to 4.25 percent -- but some investors were hoping for a half-point cut from the Fed's final meeting this year, and their disappointment took the market sharply lower.
Wall Street had barreled higher the past two weeks, propelling the Dow up 640 points partly on rising optimism that the Fed would do all it could to prevent the economy from slipping into recession. While the Fed indicated yesterday it was doing exactly that, the market's expectations had run well ahead of the central bank's view of the economy and what it needed.
Fed officials did signal that further cuts are possible, if a severe downturn in housing and a crisis in mortgage lending worsen, but that was not enough to assuage the market.
Moreover, the central bank did note that the economy has suffered. The statement accompanying the Fed's decision said "information suggests that economic growth is slowing," and removed language from prior statements stating that risks to the economy are balanced. But the Fed seemed to stand firm on a quarter-point cut for now.
The Dow fell 294.26, or 2.14 percent, to 13,432.77 after dropping as much as 313.29. The Standard & Poor's 500 index fell 38.31, or 2.53 percent, to 1,477.65, and the Nasdaq composite index fell 66.60, or 2.45 percent, to 2,652.35.
Decliners topped advancers by more than 5 to 1 on the New York Stock Exchange, where volume came to 1.55 billion shares compared with 1.17 billion shares traded Monday.
The Russell 2000 index of smaller companies fell 24.93, or 3.15 percent, to 766.27.
Bond prices rose sharply. The 10-year Treasury note's yield fell to 3.98 percent from 4.16 percent late Monday. Gold prices fell while the dollar was mixed against other major currencies.
Oil prices rose, but came off of earlier highs after the Fed's decision. Light, sweet crude for January delivery rose $2.16 to settle at $90.02 per barrel on the New York Mercantile Exchange.
Washington Mutual shares fell $2.46, or 12.4 percent, to $17.42 after the nation's largest savings and loan also said it will close offices, lay off more than 3,000 workers, and slash its dividend. The bank also set aside up to $1.6 billion for loan losses in the fourth quarter.
AT&T rose $1.56, or 4.1 percent, to $39.46 after the tele-communications company said it would buy back 400 million shares and raise its dividend 12.7 percent.
The buyback represents about 7 percent of the company's stock and will be completed by the end of 2009.