Fed lowers interest rate.

The Fed announced wednesday, that the interest rate would be lowered to 4.5%. After this announcement, the Dow Jones lost a lot of points. Markets started selling after this decision of the Fed, because they believe that this could be the last disrating of the interest.
This already is the second month in a row, that the interest rate is cut. The Fed is doing so, to give the economy some breathing space. Loans get cheaper, so it's easier to invest. The Fed also hopes that a lower interest rate will decrease the negative effects of the housing market on the economy.
The Fed believes that the economy will slow down on the short term, therefore they will keep an eye on inflation.
Basic inflation has weakened this year, but we'll have carefull. Prices of energy and commodities are rising and can result in a growing inflation.
The cut in the interest rate from last wednesday wasn't an unanimous decision. Thomas Hoenig didn't vote in favour... .

It's very strange that markets react by selling, after an interest cut. Normally the regular investments get less attractive and stocks get relatively more attractive. Wednesday the market already expected an interest cut. It actually was the announcement after the decision, which said that the main item for the Fed from now on will be inflation, who caused the selling attitude. If the Fed says that from now on inflation will be the main issue, the Fed imputes that it won't lower interest rates again.
I think it's true that this decision will bring some new investments along. The question remains if this will be enough to stop the cooling of the economy.
The decision wasn't unanimous... . I wouldn't have vote in favour too, the interest cut still caused a shock on the markets. I think it would have been better to wait a month. And then, when it was necessary, they still could have lowered the interest rate.

Thomas

source:http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3335463