On Friday, Jan. 18, 2008, President Bush announced an economic stimulus plan to pump as much as $150 billion into the U.S. economy by way of tax cuts and government spending in an effort to avoid a recession. However, that news didn’t have a positive affect on Wall Street.
From the Wall Street Journal:
The stock market tumbled yesterday after Fed Chairman Ben Bernanke addressed Congress, and Bush’s words this morning weren’t received much better by investors. Just after the president spoke, the Dow Jones industrial average, which had been up sharply earlier in the morning, was down nearly 65 points.
The result has been that world wide markets are down sharply. Global eyes are turning to Wall Street to see what the next move will be.
Trading took a downward trend the following Monday, as global markets reacted to Friday’s trading. Wall Street was closed in observance of the Martin Luther King Jr. holiday. Without the input of Wall Street, speculation impacted every country.
From ABC News:
"I think the word you use to describe this is a crash," said Adrian Mowat, chief Asia strategist for JP Morgan. "The market has fallen very sharply. One market fall triggers another fall."
Japan's Nikkei average closed down at 5.7 percent, its largest percentage drop in nearly a decade.
Hong Kong's Hang Seng plunged to 8.65 percent. Even insulated markets that normally buck the trend, such as in China and India, did not come out unscathed.
In Mumbai, trading was temporarily halted when the stock markets plunged more than 10 percent in the first few minutes after the opening bell.
In response, the Federal Reserve has cut its benchmark interest rate by three-quarters of a percentage point.
From the New York Times:
In a statement, the Fed said: “The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”
“Moreover,” the statement continued, “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”
If nothing else, this confirms that the United States has a significant global impact.
The last two such emergency cuts were on 17 September 2001, shortly after the attacks of 11 September, and on 3 January 2001, in the wake of the dotcom bust.
The last time the Fed cut rates as much as three-quarters of a percentage point was in August 1982, almost 26 years ago.
So, what are the most likely impacts to IT? Start-ups will be hindered, salaries will fall, IPOs will likely stay private. A lot will depend on if the Fed's emergency action starts to shore global markets. It appears that London has stabilized somewhat, but the Fed's announcement missed the Asian markets. That means that Asia was impacted by a second day of hysteria trading. How do you think that this will affect you?