By James Langton

(April 18 – 11:05 ET) – The U.S. Federal Reserve Board has surprised markets once again with a 50 basis point inter-meeting rate cut.

The Federal Open Market Committee decided today to lower its target for the federal funds rate by 50 bps to 4.5%. It also cut the discount rate to 4%, down 50 bps.

The move comes as a complete surprise to most traders, who had abandoned hopes for an inter-meeting cut in recent days, although one was anticipated last week. Markets are staging a massive rally in response to the move. The Dow Jones industrial average has surged over 400 points.

The FOMC says data since its March meeting indicates, “capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward. This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, threatens to keep the pace of economic activity unacceptably weak. As a consequence, the committee agreed that an adjustment in the stance of policy is warranted during this extended inter-meeting period.”

The Fed signals it still sees weakness on the horizon. “The committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.”