How the Fed's shock-and-awe move could affect you

For savers and investors, the shock may be that paltry rates on bank savings certificates will fall further -- forcing many people to consider moving cash into riskier assets, such as stocks.

For homeowners, the awe element may be the ability to refinance a mortgage at a rate of less than 5%.

The Fed said it would allow its benchmark short-term rate to fall as low as zero, from 1%.

And with that rate now at rock bottom, policymakers emphasized other steps they could take to drive down mortgage rates and other long-term interest rates, mainly by buying bonds and other securities for the Fed's own portfolio.

Wall Street's reaction was jubilant: The stock market surged, with the Dow Jones industrial average rallying 359.61 points, or 4.2%, to 8,924.14.

The broader Standard & Poor's 500 index rose 5.1%.

Investors also rushed to lock in yields on long-term Treasury bonds and other fixed-income securities.

In poker terms, "The Fed went all in," said Paul McCulley, a managing director at bond-fund giant Pimco in Newport Beach. "It was exactly what they needed to do," he said, to strengthen their commitment to ending the credit crisis and to set the stage for a turnaround in the economy.

Here are some of the potential effects of the Fed's moves on three key constituencies:

Savers

In part, by cutting the target for its benchmark short-term interest rate to a range of zero to 0.25%, the Fed was acknowledging market reality: That rate -- what banks charge one another for overnight loans -- already had fallen under 0.5% in recent weeks, a reflection of other Fed moves to flood the banking system with cash.

Still, with a new zero floor for the Fed's rate, banks now have more leeway to reduce further what they pay on deposits. Even though many banks have been eager to hang on to deposits, yields on savings certificates have been in a steady decline since early October.

The national average yield on six-month certificates was 2.11% on Tuesday, down from 2.14% a week earlier and 2.33% on Oct. 7, according to Informa Research Services.

By reducing the cost of money, the Fed wants to fatten banks' profits and thereby encourage them to lend more.