Just one week after cutting key interest rates by 75 basis points, the Central Bank again lowered both the fed funds rate and the discount rate by another half point.
“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 Federal Reserve said today in a statement.
The move, approved by a 9 to 1 vote, came after a Commerce Department report revealed that housing investments fell at the fastest pace in 26 years and GDP grew just 2.2 percent in 2007, the slowest rate since 2002.
The fed funds rate now stands at three percent, and the discount rate has been reduced to 3.5 percent.
Commercial banks are also expected to follow suit and lower the prime rate to six percent, which is good news for home equity loan holders.
The rate cut marked the fifth time the Fed has lowered key interest rates since mid-September, when the severity of the credit crisis began to come clear.
“Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,” the Fed added.
“Recent information indicates a deepening of the housing contraction as well as some softening in labor markets.”
The GDP report showed that a key gauge of core inflation jumped at an annual rate of 2.7 percent in the final three months of the year, up sharply from the two percent increase in the July-September quarter.
“The Committee expects inflation to be moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.”