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Fed Rate Cut Raises Concerns


The half-point cut was a double-edged sword.

Though the Federal Reserve's bold move to breathe new life into a sputtering economy was meant to help matters, Wall Street was struggling to resolve the fact that the larger-than-expected cut might mean the economy is sicker than it believed.

"Incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment," the Fed said in a statement. "Today's additional monetary easing should prove helpful as the economy works its way through this current soft spot."

Investors had been expecting a quarter-point cut: anything less, and Wall Street would feel abandoned, anything more, analysts said, and investors would get spooked.

Though stocks initially popped at the Fed's announcement, major indexes bobbed around in the hour afterward, sinking into the red and them turning up slightly.

By late afternoon, the Dow Jones Industrial Average was up 19 points and the Nasdaq composite inched up 4.80. Bonds were flat and the dollar was weaker.

"The linchpin of the issue is confidence -- consumer confidence, and more importantly, business confidence," said Anirvan Banerji, director of research at the Economic Cycle Research Institute in New York. "The market's performance will hinge critically on whether this [rate cut] is viewed as confidence enhancing or confidence impeding."

Some latched onto the Fed's "current soft spot" statement as an indication that the slowdown was temporary.

In addition, the central bank changed its balance of risk statement to neutral, some said in an attempt to preempt speculation that it was embarking on a new string of rate cuts....