Fed cuts discount rate

Before the commencement of trading, the Federal Reserve announced a cut in the discount rate, the rate at which banks borrow directly from the Fed, by 50 basis points to 5.75% and eased terms, but left the official target for the fed funds rate at 5.25%. In its statement, the Federal Open Market Committee said, "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward," emphasizing that "downside risks to growth have increased appreciably."

The FOMC is "prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets." The Committee said the move will remain in place "until the Federal Reserve determines that market liquidity has improved materially." Treasury yields have fallen in recent days, with the biggest drop coming at the short end of the curve, while the yield on the 3-month T-bill has plunged over a full-percentage point as investors seek safety from the storm. Treasury prices are mixed following the Fed's move, with prices rising on the short end of the curve, but are lower on the middle and long end as the rise in stocks and the reduction in the discount rate calm jittery nerves.

[Charles Schwab Morning Market View]