THE expression “We're from the government, we're here to help” may come back in vogue as global markets, often times, immediately feel the impact of whatever happens in the US economy. Against a background of a prolonged US housing market slump which sent the global financial markets reeling, the US Federal Reserve's decision on Tuesday to lower the benchmark rate by 0.75 percentage points, though falling short of traders' bets for at least a full percentage point, still made a positive impact globally as equity markets rallied after the news. Even though many have anticipated the US policy makers' action, what matters is that it transmitted a clear signal that the US government is bent on putting a brake on the slowing economy. The US central bank's move came amid what many analysts say is the worst financial crisis on Wall Street in decades after a cash crunch caused US investment bank Bear Stearns to implode. Investors welcomed the Fed's move. They were initially bracing for a domino effect among big US investment banks after the near-failure of Bear Stearns. The US rate move was the latest in a multi-pronged effort by Fed to keep credit flowing and markets functioning to avert a financial meltdown. Besides, the Fed's gesture is simply an application of the fundamental economic laws, no more, no less. The Federal Reserve once gain moved with a surgical precision, which explains why its Chairman Ben S. Bernanke bucked investors' bets on a deeper interest rate cut. The less-than-one percentage cut is designed not to spoil the biggest US stock market rally in five years. Moreover, the decision still leaves the door open for further reductions, if and when necessary. At the same time the action is aimed at taming wayward inflation as, traditionally, such move would send prices higher. So, the Federal Open Market Committee, in doing so, merely applied the basic principles of corporate governance, i.e., enforcing the applicable laws and regulations that make up a market economy's institutional infrastructure and integrity. And the timing is just but right. First, the Fed observed carefully the market developments before introducing another rate cut as a manifestation that it has acted judiciously bearing in mind fairness, transparency and accountability. However, the global rally could be short-lived. True to human nature, some still cling to recession fears, as the collapse of the US subprime housing market would continuously dent the global financial markets. They might be right, as considerable market concerns remain about a deeper and longer recession or a systemic crisis. Anyway, what matters most now is that the US policy makers showed that they are closely monitoring the economic developments, and will act when deemed appropriate. Thus, it gives hints of new rate cuts down the road. __
