Fed Cuts Key Interest Rates by Quarter Point

December 11, 2007 No Comments »

As expected, the Federal Reserve cut key interest rates by a quarter point Tuesday in an effort to avoid a looming recession.

The federal funds rate has been reduced to 4.25 percent, the third successive rate cut in the last three months, and likely not the last as Fed officials signaled that further cuts were possible if the mortgage crisis worsened.

Previously, the Fed cut the federal funds rate by a half-point in September and a quarter-point in October.

A statement released by the FOMC said, “Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.“

“The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.”

The Fed also cut the discount rate by a quarter-point to 4.75 percent, and expects commercial banks to lower their prime lending rate to 7.25 percent, spelling some relief for holders of home equity lines of credit.

The vote to cut rates was won by a 9 to 1 vote, with only Eric S. Rosengren arguing for a larger, half-point cut in the federal funds rate.

But the Fed said that though financial markets have been increasingly strained in recent weeks, some inflation risks remained.

Many analysts expect the Fed to continue to lower rates through much of the beginning of 2008.

federal funds rate chart

Leave A Response