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Federal Reserve Cuts Rates by 1/2 Percent, Cash Surges Into MM Funds. The Federal Reserve Board of Governors cuts its Federal funds target rate from 5.25% to 4.75% and also reduced the less important discount rate to 5.25%. The Fed statement says, "[T]he tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." Expect to see unprecedented inflows into money market mutual funds as institutional investors "ride the lag". Money fund yields should fall sharply over coming weeks as they digest the first Fed cut since June 2003 and the first Fed move since June 2006.
