Federal Reserve Indicates Another Rate Cut Possible: Market Rallies

The Fed, faced with mounting signs of a slowing economy, opened the door to an interest rate cut next month.

The stock market, in response, staged is largest two-day rally in five years.

The recent signal from the central bank came in remarks by Donald Kohn, it’s vice chairman, which represented a Fed Acknowledgment that the financial market turmoil that started this summer remains a threat to the economy.

Fed chairman, Bernanke, said that he didn’t anticipate the degree of deterioration that’s happened over the last couple of weeks.

Seems that in part, stocks shrugged off the housing market recent bad news and reports suggesting weak consumer spending didn’t taint stock market activity either.

The Dow rose 331.01 points, or 2.6% to 13289.45, the latest in a string of 100-point-plus moves that have whipsawed investors.

In August, worries about defaults on high risk mortgages froze up credit markets and compelled banks to impose stricter lending terms. The Fed responded by injecting funds into financial markets, easing loan terms and ultimately cutting interest rates. Initially, stocks rallied and yields on risky debt declined

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