INSTANT VIEW: Fed cuts target rate in surprise move by 75 bps

NEW YORK (Reuters) - The U.S. Federal Reserve on Tuesday slashed the benchmark federal funds target rate by 75 basis points to 3.5 percent in a surprise intermeeting decision.

COMMENTS:

TAMMO GREETFELD, EQUITY STRATEGIST, UNICREDIT MARKETS &

INVESTMENT BANKING, MUNICH:

"The short-term impact from a psychological point of view is a positive one. However the markets should soon refocus on the question of how quickly interest rate cuts as well as the fiscal package will be able to turn the market around and provide a lasting floor for stabilization.

Here, markets were not convinced that this would be possible. That was one of the main features of the last couple of trading days and so most likely the Fed rate cut will only deliver temporary relief.

The equity markets will need a prolonged period of a bottoming phase in order to find a new basis for a new sustained uptrend. That will be a process that will take some time and that is not a done deal by one decision.

Our view was this morning and still is that after this drop there will be short-term trading opportunities in equities but there is no urgency to go overweight equities now as a long bottoming phase is expected and there will be opportunities then."

LAURENT TIGNARD, CHIEF EXECUTIVE OF THE EUROPEAN UNIT OF

HALBIS, THE ACTIVE FUND MANAGEMENT ARM OF HSBC, PARIS:

"It shows there is a real risk of a slowdown in the United States.

"(The Bank of England and the European Central Bank) will likely follow the Fed's example. But they won't cut as much because the situation (in Europe) is less problematic (than the one in the United States."

JENS-OLIVER NIKLASCH, ANALYST AT LBBW, STUTTGART:

"This is a powerful adrenaline injection for the markets. But one knows that with this kind of drug you usually need to increase the dosage."

"The Fed has apparently taken into account the risk stemming from the financial markets. There was a danger that it could have led to a downward spiral. The Fed has taken timely action."

"It is also interesting that they have left themselves room for further moves. The financial markets know that the Fed is determined to act. But it is also implicit that the Fed sees the recession risk as massive. From that point of view the question is how this will play out in the markets."

DAVID JONES, CHIEF MARKET STRATEGIST, IG INDEX, LONDON:

"There were (rumors) and they have come true. I was skeptical when I first heard them but as they go on it all tends to gather pace and the futures markets were pricing in a 72 percent chance - so it did look a bit probable."

"I saw a spike up on the FTSE but its come off. It's just being incredibly volatile and seems to be settling back."

"If the market expects it, it's a bit of a knee-jerk reaction when it comes out but then its where it settles off next."

"This decline that we're in has the potential to be a lot more serious, and it wouldn't surprise me to see when the U.S. opens, we see a sharp open and then it drifts off."

"It will be the latter half of the U.S. session and tomorrow that probably gives us direction."

"Maybe it'll ease some of the pressures on the banking sector and maybe retail (and) consumers (will) feel a bit happier."

"It could filter through to all different areas, but you'd have thought first of all it'd be banking and real estate."

"(The UK) are all expecting a (BoE) cut next month and maybe now that has thrown a question mark into how big that cut's going to be."

"The bank (BoE) have got a couple of weeks to see how things pan out, unless they decide to make an emergency cut, but I doubt they will now the U.S. have done it."

JOHN CAREY, PORTFOLIO MANAGER FOR PIONEER FUND, BOSTON:

"Investors will have a lot to digest today between the very weak performance of a lot of international markets yesterday, the earnings that are coming out today--many of which are disappointing -- and also this fed action. It will be a question of whether investors will see it as a stimulative move that will help push the economy out of this trough it has fallen into, or whether investors see it as a desperate move on the part of the Fed to stave off recession that is probably likely."

"I personally think that the economy has a lot of issues right now with respect to housing, the availability of credit and a slowdown in order rates for different types of business equipment. This might help a little bit in the near-term, but basically I think we're on the downside of an economic cycle and while this type of move could help, we still have some basic issues to resolve before we can begin a full-fledged recovery. I think it will be some time before the economy starts to turn around.

"In the near-term too I'd expect that this sharp interest rate cut would wreak havoc on the dollar, unless the European Central Bank does something similar. The dollar is going to be under some extreme pressure."

JOHN PERSON, PRESIDENT OF NATIONALFUTURES.COM, PALM BEACH,

FLORIDA:

"This is a short-term fix. The market initially reacted. The market needs more long-term solutions and fiscal policy changes other than further rate cuts by the Fed. Investors are in a preservation of capital mode at this point."

DAVID DIETZE, CHIEF INVESTMENT STRATEGIST AT POINT VIEW

FINANCIAL SERVICES, SUMMIT, NEW JERSEY:

"Certainly the Fed is playing a catch up game here."

"The Fed has made a good start towards catching up the very low (Treasury bond) yields. Clearly the bond market is pricing in a severe downturn in the economy."

"If we see coordinated action (from central banks) on a global basis, that would help stock investors feel there is some floor."

CARL LANTZ, U.S. INTEREST RATE STRATEGIST AT CREDIT SUISSE

IN NEW YORK:

"The market reaction is sort of as expected, with the front end doing well and the long end sort of lagging, TIPS break-evens going wider, the Eurodollar curve steepening quite a bit. The Fed is getting very aggressive. They are willing to sacrifice inflation for growth if need be.

"That is leading to the steepening of the curve. We are finally seeing that in the Eurodollars. They had started to steepen in the last couple of weeks and now they are moving quite a lot. With the Fed being this aggressive the idea is that you'll get Sep/Sep and Dec/Dec pretty steep because the Fed will be sort of done easing in a fast manner. By September we'll have a really low funds rate and then it will be more sort of thinking about when they start hiking again.

"I think that is part of why the Fed went so aggressively. I think they do want to steepen the money market curve because that is particularly beneficial to banks, who borrow overnight and lend out at term. It's sort of a horse race but the Fed would like to get the overnight rate down below at least the two-year rate."