Federal Reserve policy makers lowered the benchmark U.S. interest rate a quarter percentage point, the 11th reduction this year, and signaled more cuts are possible to pull the economy out of recession.
Fed Chairman Alan Greenspan and his 10 voting colleagues on the policy-setting Open Market Committee reduced the target rate for overnight loans between banks to 1.75 percent, the lowest in 40 years.
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“Economic activity remains soft with underlying inflation likely to edge lower from relatively modest levels,” the Fed said in a statement accompanying its decision. “To be sure, weakness in demand shows signs of abating, but those signs are preliminary and tentative,” the Fed said.
With unemployment rising last month to a six-year high of 5.7 percent and the loss of almost 800,000 jobs in the last two months, central bankers warned the economy faces a risk of continued weakness, suggesting further rate reductions are possible in coming months.
Since it began trying to regulate the overnight rate directly about a decade ago, the Fed has never lowered it 11 times in one year. This year’s reductions, which started with a surprise half- percentage point cut Jan. 3, have trimmed 4 3/4 points off the lending rate. Even with the most aggressive rate reductions in Greenspan’s tenure as Fed chairman, the economy still slid into recession in March.
Bloomberg
