NEW YORK — Wall Street plunged Tuesday after the Federal Reserve lowered interest rates by a quarter point, disappointing investors who hoped the central bank would move more aggressively to help the economy overcome the credit and mortgage crisis. The Dow Jones industrial average skidded more than 290 points.
Investors had been expecting policymakers to lower rates for a third straight meeting, though there was debate over the size of the cut. Most economists anticipated a quarter- point reduction in the benchmark federal funds rate to 4.25 percent — but some investors were hoping for a half-point cut from the Fed’s final meeting this year, and their disappointment took the market sharply lower.
Wall Street had barreled higher in the past two weeks, propelling the Dow up 640 points partly on rising optimism that the Fed would do all it could to prevent the economy from slipping into recession. While the Fed indicated Tuesday it was doing exactly that, the market’s expectations had run well ahead of the central bank’s view of the economy and what it needed.
The Fed also lowered its discount rate, the interest it charges banks for loans, by a quarter point to 4.75 percent, making it easier for banks to obtain the cash they need for year-end obligations.
Fed officials did signal that further cuts are possible if a severe downturn in housing and a crisis in mortgage lending worsen, but that was not enough to assuage the market.
The Dow fell 294.26, or 2.14 percent, to 13,432.77 after dropping as much as 313.29.
Broader indexes also fell. The Standard & Poor’s 500 index fell 38.31, or 2.53 percent, to 1,477.65, and the Nasdaq composite index fell 66.60, or 2.45 percent, to 2,652.35.
Declining issues outpaced advancers by more than 5-to-1 on the New York Stock Exchange, where volume came to 1.55 billion shares, compared with 1.17 billion shares traded Monday.
Bond prices rose sharply. The 10- year Treasury note’s yield, which moves opposite the price, fell to 3.98 percent from 4.16 percent late Monday.
Light, sweet crude oil for January delivery rose $2.16 to settle at $90.02 per barrel on the New York Mercantile Exchange.
“Time will tell if this restores enough confidence in the system,” said Bill Knapp, chief investment strategist for MainStay Investments, a division of New York Life Investment Management. “They’re saying that this, with the other cuts that we have done, should promote growth over time. It’s a telegraph that we think this is a sufficient move to alleviate the stresses on the market.”
