Ben Bernanke’s wild-pitch rate cut bounced off Wall Street with a thud.
The Federal Reserve chief’s half-point cut yesterday in a key interest rate to 1 percent was intended to spur business activity by throwing even more cash into the economy – which is already being flooded with up to $1 trillion of liquidity from Uncle Sam.
The Dow Jones industrial average sputtered up and down following the afternoon rate cut, but surged by more than 280 points in late profit-taking before ending the session in the red.
In Europe and Asia, shares rallied sharply led by stocks of financial companies anticipating aid from their governments and new rounds of interest rate cuts abroad.
Traders say Bernanke’s rate cut was a non-event that already had been factored into their strategies and would do little to prop up the ailing economy.
“Nothing has changed in the last 48 hours. They cut rates, so what? They have been cutting rates for a long time, and things have progressively gotten worse,” said Bruce Dunn, vice president of trading at Auramet Trading.
The Standard & Poor’s 500 Index fell 1.1 percent, or 10.42, to 930.09. The Dow average slumped 74.16, or 0.8 percent, to 8,990.96. Nasdaq was flat at 1,657.21, edging up 7.74 points, or 0.47 percent.
Some analysts say Bernanke’s rate cuts have lost their impact to spur the economy, and could even ignite a new round of sharp inflation.
“The Fed’s rate cut is throwing gasoline on an inflationary fire that it created but continues to ignore,” said Peter Schiff, president of Euro Pacific Capital.
He said Bernanke has “mistaken temporary drops in commodity prices – which merely resulted from deleveraging – for clear evidence that the inflation menace has been quelled.”
Indeed, commodities prices shot up following the rate cut – with sharp rises in corn, soybeans, crude oil, gasoline and home heating oil.
Wholesale gasoline surged as much as 7 percent, settling at $1.533 a gallon, up 5.3 percent, or 7.75 cents a gallon. It’s likely to end the brief gas pump reprieve of regular gas at under $2.60 a gallon in the New York area.
Crude oil jumped as much as 10 percent here before settling at $67.50 a barrel, up $4.77 a barrel, or 7.6 percent. Heating oil jumped 4.7 percent to $2.001 a gallon, up 8.9 cents a gallon.
Soybeans soared the sharpest in 20 years and corn rose the maximum 7.7 percent allowed by the Chicago Board of Trade.
Gold hit a one-week high of $754.00 an ounce on the spot market, up $13.50, while the dollar tumbled against major currencies.