In line with market expectations the Fed cut US interest rates by 0.25% to 4.5% in an attempt to support the crumbling US housing market which continues to put a downward pressure on the US economy.

The market reaction was for stocks to rally and the US dollar to fall to new lows with the British Pound crossing above $2.08 for the first time since 1981. The Dow Jones rallied to 13,930. The trend is inline with the anticipated mild October correction and the expectation is now for the stock market to gear up for the end of year rally as per analysis of 7th October 2007 ( Stocks Bull Market - Bad News is Good News as Markets Continue to Price in Interest Rate Cuts) .

The expectations of sharp cuts in US interest rates in response to the subprime sparked credit crunch was highlighted in the article of 31st July 07 (Hedge Fund Subprime Credit Crunch to Impact Interest Rates), which concluded with the expectation that the change in sentiment towards expectations of rate cuts as being extremly bullish for the stock markets and therefore representing an opportunity to act ahead of the curve during subsquent market declines.

By Nadeem Walayat
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Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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