The Federal Reserve lowered the federal funds rate 75 basis points to 2.25 percent and the discount rate to 2.50 percent, citing a weak economic outlook.
Commercial banks are expected to follow suit and lower the prime rate to 5.25 percent, which will provide immediate relief to home equity loan holders.
The decision to lower the fed funds rate was approved by an 8-2 vote, with Richard W. Fisher and Charles I. Plosser recommending less aggressive action.
The Fed blamed a slowdown in consumer spending and poor labor markets for the decision, along with the impact of the ongoing mortgage crisis and housing slump on credit markets.
But the Central bank warned that inflation worries have risen, and though they expect inflation to moderate in coming quarters, said uncertainty about the inflation outlook has increased.
“Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity,” the Fed said in a statement.
“However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.”
Since mid-August, the Fed has lowered the federal funds rate six times and the discount rate eight times (including an emergency cut last Sunday) as the credit crunch intensified.
In January, the discount rate stood at 4.50 percent and the fed funds rate was 3.50 percent.
And since last summer, the prime rate has fallen a whopping three percent.
Learn more about the federal funds rate, discount rate, and prime rate.
(photo: redvers)
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