Small caps edge up after Fed trims rates

As widely expected, the Fed trimmed the fed funds rate by 25 basis points to 2%. It is the central bank’s seventh consecutive cut in the key interest rate since September, when the Fed first began battling the credit tempest. The discount rate was similarly lowered by 25 basis points to 2.25%.

In justifying the decision, the Fed said economic activity remains weak because of subdued spending and a soft labor market. The Federal Open Market Committee voted 8-2 to bring its target rate to its lowest since December 2004.

Small caps treaded water briefly after the Fed decision, but are beginning to rise in afternoon trading. At 2:45 p.m. ET, the Russell 2000 (NYSE:IWM) was up 4.93, or 0.69%, at 723.86.

This morning, it was reported that the U.S. economy grew at a slothful 0.6%, just dodging negative growth — an “official” recession signal. GDP came in slightly better than the 0.5% economists had forecasted. While official definition of a recession definition is two consecutive quarters of negative GDP growth, the United States has experienced two quarters of extremely sluggish growth and the U.S. economy is clearly struggling as consumers grapple with tumbling housing values, rising energy and food costs and a soft labor market.

“Everyone has been finding holes in the positive GDP even before it came out and today's number showed much better consumer spending than what would think,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. “However, this data didn't include much of the March numbers. We know . . .

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