All the papers lead with the Federal Reserve's surprise decision to cut a key interest rate yesterday morning. The move to slash the federal funds rate, which is what banks charge each other for short-term loans, by three-quarters of a percentage point to 3.5 percent largely succeeded in preventing the huge sell-off in U.S. stock markets that everyone was predicting. The Dow Jones industrial average plunged about 5 percent as soon as the markets opened, but recovered most of that to end the day down 1.1 percent. The effects were also felt abroad as European markets, which continued falling yesterday morning, reversed course and ended closing higher for the day, and most Asian markets stabilized this morning.
There's some disagreement in the papers about the historical context of the rate cut. USA Todaysays it was the "biggest interest rate cut in 18 years," the Washington Postsays it was the "largest in 24 years," the Los Angeles Times goes with "almost two decades," while the Wall Street Journal prefers to say it was the "deepest cut in the Fed's main interest-rate target in more than two decades." The New York Timesappears to rely on a technicality (the Fed used "different procedures" in the 1980s) to claim that it was the "biggest one-day reduction of interest rates on record." Technicalities aside, the dramatic move is a sign of the concerns about the possibility of a deep recession, and most think the Fed will likely cut interest rates by another half a percentage point next week. To put things in perspective, the WP reminds readers that after the Sept. 11 attacks, the Fed cut rates by half a point.
All this cutting is risky for the Fed ("investors may view the steps as panicky," says the WSJ), and many don't think it will really prevent a recession (in fact, some economists think it has already begun), although it might make it shorter and less intense. The NYT points out that "changes in interest rates usually work with a lag time of at least six to nine months" and the WP makes clear that rate cuts "do not directly address the root cause of the crisis—a set of bad bets made by financial players all over the world over many years that roiled the fundamental business of lending money."
Everyone notes that the Fed is supposed to worry about the economy as a whole and not the stock markets. But the LAT says that it has become increasingly difficult "to disentangle what is strictly an economic problem from what's a market one." In a Page One analysis, the NYT says that all signs point to a recession that will be bigger and more painful than what the country experienced in 1990 and 2001.
USAT does the best job of clearly explaining how the interest rate cut will affect regular consumers. A rate cut obviously helps borrowers and hurts savers, but, as Slate's "Explainer" points out, the only people who are likely to see a marked benefit in their daily lives are those with good credit. In another piece of service journalism, the Post dishes out advice for investors of all ages and emphasizes that the main recommendation given out by financial advisers is to simply "stay calm."
The Post fronts the meeting President Bush had with lawmakers and says the two sides "moved closer" to reaching an agreement on a $145 billion stimulus package. A big chunk of the money would be used for tax breaks for individuals, as well as added spending on unemployment benefits and food stamps. On the subject of who would get the rebate checks, the Bush administration seems open to the idea of including those who don't pay taxes, while Democrats are willing to agree to tax breaks for businesses. As the WSJ also highlights, Democrats are currently discussing the possibility of a second bill for longer-term items such as infrastructure spending, but some want at least some of that to be included in the first measure. USAT is a little skeptical and notes that after all the meetings "little had been settled except the need to act fast." And there were voices of dissent as lawmakers from both sides of the aisle characterized the plan as a political move that would have little positive effect on the economy.
While everyone is talking about rebates and tax cuts, Len Burman writes in the NYT op-ed page that nothing would stimulate the economy in the long-term as much as a repeal of the Bush tax cuts. In a separate piece, Joseph Stiglitz writes that while rebates can be effective if aimed properly at those who will spend it quickly, a stimulus package should also strengthen unemployment insurance and include spending projects.
The NYT notes inside that Mike Huckabee, whose campaign continues to be chronically underfunded, could be "the first casualty" of a compressed primary calendar that is forcing candidates to spend money like never before. He announced yesterday that he won't be advertising in Florida, a crucial state for Republicans, which could give Mitt Romney a leg up in his fight against John McCain. In other news from the Republican contest, Fred Thompson has now officially dropped out of the race.
The LAT fronts a look at Antoin "Tony" Rezko, the man whom Sen. Hillary Clinton accused Obama of helping in his "slum landlord business." The paper says Rezko "played a deeper role in Obama's political and financial biography than the candidate has acknowledged," and his trial, which begins next month, could mean more controversy is on the way for the senator.
The WP fronts a careful look at the Iraqi law passed last week that was touted as a big sign of political progress because it would allow former members of Saddam Hussein's Baath Party to return to government jobs. Turns out, no one is really sure what it means—"The law is about as clear as mud," said one U.S. senior diplomat—and some think it will actually end up marginalizing more Sunnis because it could kick out even more former Baathists from the government, particularly in key ministries. That's hardly a surprise (a NYT story raised these questions two days after the law passed), but it is notable that confusion still reigns a week later.
USAT is alone in fronting news that Jose Padilla was sentenced to 17 years in prison. The sentence was shorter than the life term the government wanted and also less than what sentencing guidelines recommended. The judge said she took into consideration the "harsh treatment" Padilla received when he was identifid as an "enemy combatant" and held without charge.
The NYT fronts, and everyone mentions, news that actor Heath Ledger died yesterday. The 28-year-old actor, who gained wide critical acclaim for his Oscar-nominated performance in Brokeback Mountain, was found naked and face-down on the bedroom floor of his New York apartment. Police emphasized it was too early to determine a cause of death but did say a bottle of prescription sleeping pills was found nearby.