Ben Bernanke, the chairman of the Federal Reserve, and his fellow policy makers cut the federal funds rate for the third time in a row Tuesday, and stocks plummeted as a reaction out of disappointment that more aggressive rate cuts were not made.
The rate cut affects how much interest that consumers pay on credit cards, home equity lines of credit and auto loans. The current federal funds rate is now 4.25 percent.
The resulting stock-market backlash was overwhelmingly apparent, as the Dow dropped 2.1 percent (approximately 300 points). The S&P and NASDAQ both dropped approximately 2.5 percent.
The Fed had dropped rates by .5 percent back in September, and at least one member of the Fed’s policy-making committee, Eric Rosengreen, voted to repeat that measure on Tuesday.
Many had hoped a larger rate cut would help alleviate some of the mortgage crisis that is occurring. The fear of a recession also looms, though it is not certain that a larger rate cut would prevent the recession if it were already inevitable.
The Fed’s refusal to do such large-scale cuts is a sign that it isn’t going to do any favors in helping out banks and borrowers.