Fed cuts interest rates a quarter-point

The decision by Federal Reserve Chairman Ben Bernanke and his colleagues at the nation’s central bank to cut its benchmark rate a quarter-point will reduce costs for businesses and consumers on a wide range of loans including home equity credit lines, some credit cards and potentially some mortgages. The Fed generally had been expected to cut rates by a quarter-point after its surprisingly aggressive half-point cut Sept. 18. But Bernanke has been in office less than two years and presides over a board that includes several policymakers with even less experience, leaving a relatively short track record that can be hard for Wall Street analysts to interpret.

Gold closed higher on Wednesday before the highly-anticipated announcement of the Federal Reserve’s interest rate decision. December gold added $7.50 to close at $795.30. Bullion is likely to see a sharp move in electronic trading after the fed decision. The metal finished Tuesday’s session down $4.80, pulling away from the long-term high. Gold has not topped the $800 mark since 1980, but a cut in interest rates could push the precious metal well-above that mark as greenback investors look for a hedge. Gold’s hedge value soared as the dollar was sent plunging when the Federal Reserve cut rates by 50 points on Sept. 18. A similar outcome could push gold well-over the $800 mark. As a whole, gold has been trending sharply higher since August as the US dollar has seen weakness. The greenback is moving at record lows against the euro and multi-decade lows against the British pound and Canadian dollar. Gold generally moves in the opposite direction as the dollar because of its hedge value.

In other economic news Wednesday morning, Automatic Data Processing, Inc. (ADP) released its report on private employment in the month of October, showing an acceleration in the pace of employment growth compared to the previous month. The report showed that non-farm private employment increased by 106,000 jobs in October following an upwardly revised increase of 61,000 jobs in September. This marked the strongest job growth since May, when private employment increase by 143,000 jobs. A little later in the morning, the Department of Commerce released its advance report on Q3 GDP, showing that the US economy expanded at a much faster than expected rate during the quarter. The report showed that GDP rose at an annual rate of 3.9% in the Q3, a modest acceleration from the 3.8% rate of growth seen in the Q2. Economists had expected a more modest pace of growth of about 3.1%. (rttnews.com)