Stocks rally after the Fed cuts key interest rates.

Stocks rally after the Fed cuts key interest rates.

Stocks rally after the Fed cuts key interest rates.

A summary of what's in the major U.S. newspapers.
March 19 2008 6:15 AM

Rally 'Round the Fed

Fed week continues, and all the papers lead with the latest efforts by the central bank to prevent a long-lasting recession. The Federal Reserve slashed short-term interest rates by three-quarters of a percentage point yesterday, which was less than the full percentage point Wall Street was expecting, but investors still cheered the news. The Dow Jones industrial average was up 3.51 percent when the markets closed. The Washington Postand USA Todaynote it was the biggest rally in more than five years. The Los Angeles Timesdoes the best job of explaining clearly that the Fed cut two key rates yesterday. The federal funds rate, which is the rate banks charge each other for overnight loans, was cut to 2.25 percent, while the discount rate, which is what the Fed charges banks for loans, was reduced to 2.5 percent. After the Fed's announcement, banks cut the prime rate, which means many consumers are likely to see a direct benefit on their credit card bills over the next few months.

The New York Timesand Wall Street Journal point out that investors flocked to raise the prices of financial stocks yesterday after two investment firms reported earnings that were better than expected. Lehman Brothers, which many had targeted as the next Bear Stearns, saw its shares rise more than 46 percent. The WSJ leads its world-wide newsbox with Sen. Barack Obama's speech on race in America. Obama distanced himself from the more controversial remarks made by his pastor, the Rev. Jeremiah Wright Jr., and used the opportunity to urge Americans to "move beyond our old racial wounds" to deal with problems that affect everyone.

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When it announced the sixth cut in as many months, the Fed recognized that the future looks bleak for the U.S. economy. "The outlook for economic activity has weakened further," the Fed said in a statement. The LAT points out that "about the most hopeful thing" the central bank had to say yesterday was that the prices of energy and other commodities are likely to level out this year, but even that is hardly good news because it seems to be based on the assumption that a recession will lead to a drop in demand. And although everyone says the Fed made clear it stands ready to keep cutting, the WP highlights that "more huge rate cuts" seem unlikely. This is partly due to the fact that the Fed can't go much lower and also because of growing inflation fears. The WSJ points out that many in Wall Street are now betting that the federal-funds rate will be somewhere between 1.5 percent and 1.75 percent by the end of the year.

The increasing concern about inflation was evident in yesterday's announcement, as two members of the Fed's main policy-setting committee voted against the interest-rate cuts. The NYT says some analysts interpreted the dissenting votes along with the strong warnings about inflation as a sign that the Fed's committee struggled to reach a decision on how much to cut.

Wall Street may cheer the rate cuts, but, of course, lower interest rates mean bad news for savers and those on fixed incomes, particularly retirees. "Savers are taking it on the chin," an analyst tells USAT. The LAT points out that's exactly what the Fed wants. By making saving less attractive, the central bank hopes more money will pour into the stock market. But there's so much fear surrounding the economy lately that many are willing to take the lower returns in exchange for safety.

Meanwhile, the NYT's David Leonhardt says readers shouldn't be embarrassed if they still don't fully understand the reasons behind the current financial crisis. "Your confusion is shared by many people who are in the middle of the crisis," he writes.

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Throughout most of his candidacy, Obama has largely stayed away from talking about race, but yesterday he decided to tackle the issue after receiving lots of negative publicity in recent days due to controversial sermons given by his longtime spiritual mentor. In a speech delivered at the National Constitution Center in Philadelphia, Obama said, "Wright's comments were not only wrong but divisive," but he went further and explained that Wright's statements  reflect the anger and frustration many black Americans feel due to the country's racist past. "To condemn it without understanding its roots, only serves to widen the chasm of misunderstanding that exists between the races." Obama also said he understood the anger of some whites over affirmative-action policies. "This is where we are right now. It's a racial stalemate we've been stuck in for years," he said.

Many describe yesterday's speech as the most important in Obama's career, and a historian tells USAT that it was the most extensive discussion about race ever given by a presidential candidate. The NYT notes historians "described the speech's candidness on race as almost without precedent," and many agree that it will go down in history, regardless of who wins the nomination. The official word from the Obama campaign is that the senator insisted on giving the speech, and he wrote it himself over the past few days. Many quickly praised the speech, but all the papers note it's still not clear how it will play politically. The WSJ talks to some Republicans who say Obama's alliance with Wright can still be used against him because he only spoke up against the statements once they became a political liability. Even some Obama supporters aren't sure this was the best strategy to deal with the controversy. "The more he has to talk about race, the blacker he becomes in the public imagination," a professor tells the paper.

Most of the papers' editorial boards swoon over Obama's address and heap praise on the senator for turning a damage-control speech into what the WP calls "a teachable moment." The NYT says that "it is hard to imagine how he could have handled it better." Regardless of whether it ends the controversy over Wright's statements, the LAT says that the speech "redefines our national conversation about race and politics." USAT agrees, noting that "if it does nothing more than promote needed conversations … it will have served a valuable function." For its part, the WSJ says the speech "was an instructive moment, though not always in the way the Senator intended." By blaming "standard-issue populist straw men of Wall Street and the GOP" for much of what is wrong in the country, he "also revealed the extent to which his ideas are neither new nor transcendent."

The NYT and WP front a look at how the Supreme Court appears ready to declare that the Second Amendment grants an individual right to own a gun. A majority of justices seemed ready to strike down Washington, D.C.'s handgun ban as unconstitutional, but everyone notes it's unclear how they will decide what kind of gun regulations could still be imposed by the government.

In the NYT's op-ed page, Gov. Philip Bredesen of Tennessee puts forward an interesting proposal to help the Democrats avoid "a long summer of brutal and unnecessary warfare." If there's no clear Democratic nominee by the end of the primary season, he suggests that the party should "schedule a superdelegate primary," where they would all get together in a public caucus so a decision can be made before the convention. "In addition to the practical political benefits, such a plan is also a chance to show America that we are a modern political party focused on results."

Daniel Politi has been contributing to Slate since 2004 and wrote the Today’s Papers column from 2006 to 2009. Follow him on Twitter.