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Breaking News

Wall Street Rallies on Fed Rate Cut

Aired January 3, 2001 - 1:16 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

NATALIE ALLEN, CNN ANCHOR: We've got breaking news from Wall Street right now regarding interest rates.

Let's go to CNN's Rhonda Schaffler at the New York Stock Exchange -- Rhonda.

RHONDA SCHAFFLER, CNN CORRESPONDENT: Hi there, Natalie.

Just moments ago, the Federal Reserve, in a surprise move, has cut interest rates: the Federal Funds rate cut by a half point, the discount rate cut by a quarter point. It is very rare for the Federal Reserve to move in between regular Federal Reserve Open Market Committee meetings, but we have just moments ago had a move by the Federal Reserve.

Right now, there is a lot of noise coming from the floor of the New York Stock Exchange, and we've seen a knee-jerk rally in the Dow Industrials. We want to show you what the numbers are. Minutes ago, the Dow was up only 9. The Dow soaring 127 points. And we're seeing markets turn around across the board.

There has been past precedent for the Federal Reserve to move in between meetings, the last one coming, I believe, in 1998. And that was in the middle of what was an Asian devaluation crisis. And the last time the Fed moved in between meetings, we had one of the most powerful advances on Wall Street ever.

So we are seeing a huge move right now. One reason why we're seeing this move by the Fed is because recent economic numbers -- one yesterday on the health and manufacturing -- showed that the economy is indeed slowing down much faster than many had expected.

Just to recap now what the markets are doing, a blockbuster rally under way. The Dow Jones Industrial average advancing with a triple- digit gain. The Nasdaq composite at this point is also moving higher.

And that is the latest from Wall Street. Let's go back now to Atlanta.

ALLEN: Yes, Rhonda, just a few moments ago when I was preparing to toss it away to you, I was looking at the computer and it just seemed like nothing was going on. And then, quickly, this happened. Did many people expect Greenspan to take this action due to what we were hearing from the economy? SCHAFFLER: It's interesting, Natalie. There was some expectation built into the markets that the Federal Reserve would make a surprise move, just because the recent data has showed such a severe slowdown. So you started to have traders talking up the possibility that the Fed would move. The Federal Reserve Open Market Committee has a meeting scheduled for the end of January, and there were already expectations there would be a half-point cut at that time. But what happened as this economic data started coming in, people were saying the market needs some sort of liquidity to come in, and that raised expectations that the Federal Reserve would indeed cut rates, as it has done.

And let's also point out this is a dramatic move by the Fed. The Federal Reserve not taking a small step here. It is a dramatic half- point cut.

ALLEN: And what kind of message is that from Alan Greenspan? And, Rhonda, how could this overall effect the economy in the short term?

SCHAFFLER: Well, the message is twofold. First of all, it does show that there is perhaps an increased risk for severe economic slowdown, perhaps a recession, which some people were talking about. The other message is the Federal Reserve is trying to get ahead of the curve and making a bold, dramatic move to try to pump up the economy a little bit more and so that there's an immediate boost to the economy. This will put more liquidity in the market. It also, perhaps -- and we'll see this play out over the next couple of hours -- completely changed the psychology on Wall Street, which has been very negative. We saw that yesterday.

The Dow is up 268 points right now, OK, so this is one of the most dramatic moves we've seen in a few short minutes. It shows immediate relief by the Federal Reserve. The Fed is moving quickly. It means the economy slowdown might now not lead into a recession, which has been the dominating fear.

ALLEN: What an incredible moment we've had. Thanks, Rhonda Schaffler. We'll continue to stay in close contact with you as we see the Dow take off there. We appreciate it. And we'll continue to stay on top of this story and bring you developments as they come.

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