WASHINGTON – Federal Reserve policymakers today lowered two key interest rates, each by 0.50 percent, the Federal Open Market Committee said in a statement this afternoon.
The FOMC wrapped up its two-day meeting by announcing it has pared its target for the federal funds rate by 50 basis points to 3.00 percent. The action was approved by all but one of the panel’s voting members; voting against was Richard Fisher, who said he would prefer to leave the funds rate unchanged at 3.5 percent.
In a related action, the Fed’s Board of Governors unanimously approved a matching cut in the overnight interest rate the Fed charges on direct loans to banks, cutting the discount rate by 50 basis points to 3.50 percent. The reduction had been requested by the boards of directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City and San Francisco.
“Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity,” the FOMC said. “However, downside risks to growth remain.” Its statement cited the tightening credit market, “a deepening of the housing contraction … some softening in labor markets” and the financial markets, which “remain under considerable stress.”
Last week, in a rare emergency action aimed at stemming the global stock-market slump, the central bank pared the funds rate by 0.75 percentage points. (READ MORE) It was the first inter-meeting action in the benchmark rate since at least 1990.
The cuts today were the fifth since this summer for each interest rate.
For the federal funds rate, the cuts began at the FOMC’s September session, with its first cut in four years, and have trimmed a total of 2.25 percentage points from the benchmark rate.
For the discount rate, the cuts began Aug. 17, with the Fed’s first emergency action since 2001, and have trimmed the rate by a total of 2.0 percentage points.
Going forward, the FOMC said, “the committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.”
Stock rallied after the 2:15 announcement, as the dollar fell and Treasury notes weakened, Bloomberg News reported.
But shares later plunged, on fears that the bond insurers who guarantee $2.4 trillion in securities may lose their AAA credit rating. By the close of trading in New York, the Standard & Poor’s 500 was down 6.49 points or 0.5 percent at 1,355.81; the Nasdaq Composite Index fell 9.06 points or 0.4 percent to close at 2,349.00; and the Dow Jones Industrial Average lost 27.47 points or 0.3 percent to 12,442.83, Bloomberg News said.
“The Fed’s trying to do what it can, and it looked like it excited people for a little while,” said Barry James, president of James Investment Research in Dayton, Ohio.
Additional information on the Federal Reserve System, including past monetary policy statements issued by the Federal Open Market Committee, can be found at www.federalreserve.gov.
