The news of the day was of course the results of the Federal Open Market Committee’s meeting, at which they took the big scalpel to interest rates.

The Fed wrote that, “Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight.”

Thus it effectively announced a comprehensive quantitative easing policy, saying that it would establish a target range for the federal funds rate of zero to a quarter of a percentage point. Rates will need to be kept low “for some time,” the central bank said.

The accompanying policy statement said that, “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth,” and it will support financial markets and stimulate the economy “through open market operations and other measures that sustain the size of the Fed’s balance sheet at a high level.”

The day’s hard data were none too cheery. The Commerce Department said that housing starts in November plunged 18.9%, to the lowest level since the beginning of record keeping in 1959. According to similar records kept elsewhere, it’s the slowest pace of construction in the entire post-World War II period.

At the same time, the Labor Department confirmed the deflationary environment by reporting that the consumer price index plummeted by a seasonally adjusted 1.7%, the biggest drop since the government began adjusting the CPI for seasonal factors in 1947.

The non-seasonally adjusted number, minus 1.9%, marks the steepest decline since January 1932, in the depth of the Great Depression. Small wonder that the Fed pulled out all the stops.

Source: Dollar Tanks After Fed Decision