WASHINGTON – Policymakers for the Federal Reserve System today continued their series of rate cuts, lowering both key interest rates for the sixth time in as many regular meetings. “Uncertainty about the inflation outlook remains high,” they said.
The Federal Open Market Committee ended its two-day meeting by agreeing to trim 25 basis points from the benchmark federal funds rate (used for overnight loans between banks), paring it to 2 percent.
Also today, the Fed Board agreed to cut the discount rate (used for direct loans from the central bank) by 25 basis points to 2.25 percent.
The moves – five weeks after the Fed’s last action (READ MORE) – comprised the sixth dual rate action in as many regular meetings for the FOMC, which includes the Fed Board of Governors and the presidents of the regional Federal Reserve Banks.
The panel split just as it did last month, with seven members joining Chairman Ben S. Bernanke in supporting the monetary policy. The two dissenters, Dallas Fed President Richard W. Fisher and Philadelphia Fed President Charles I. Plosser, both said they preferred less aggressive action.
“Recent information indicates that economic activity remains weak,” the FOMC wrote this afternoon. “Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
“Although readings on core inflation have improved somewhat, energy and other commodity prices have increased and some indicators of inflation expectations have risen in recent months,” the panel added.
“The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. … The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”
Today’s funds-rate action was in line with analyst expectations, Bloomberg News said, noting that futures prices indicate that investors now expect the Fed to pause its series of rate cuts.
The current series of rate cuts began during an Aug. 17 teleconference – triggered by the subprime lending collapse – that was the Fed’s first emergency rate action since 2001. (READ MORE) Both rates previously had been unchanged for 12 months – the funds rate at 5.25 percent and the discount rate at 6.25 percent – after rising steadily over the previous three years.
Over the past nine months, the Fed has pared the funds rate 7 times and the discount rate 9 times. Those actions came at regular meetings today, March 18, Jan. 30, Dec. 11,Oct. 31 and Sept. 18, plus emergency sessions March 16, Jan. 22 and Aug. 17.
The Fed’s preferred inflation measure – the “core” personal consumption expenditures index, excluding food and energy – rose at an annual pace of 2.2 percent in the first quarter, the U.S. Department of Commerce’s Bureau of Economic Analysis said today. (READ MORE)
Additional information about the Federal Reserve System, including current and past statements by the Federal Open Market Committee, can be found at www.federalreserve.gov.
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