FED MAKES HALF-POINT CUT

From USA Today:

The Federal Reserve cut interest rates a half-percentage point Tuesday in a dramatic bid to shore up confidence in the economy and ease worries about a credit crunch in financial markets.

Fed Chairman Ben Bernanke and his colleagues unanimously voted to lower their target for short-term interest rates, which influences a wide variety of borrowing costs, to 4.75% from 5.25%. The cut was the first from the Fed in more than four years and followed 15 months of steady rates from the central bank.

In their post-meeting statement, Fed policymakers said the credit squeeze "has the potential" to sharpen the housing decline and harm the larger economy. They said turmoil in financial markets had "increased the uncertainty" about the economic outlook.

"Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time," they wrote.

The Fed on Tuesday also cut the discount rate, the rate it charges banks for direct loans, by a half-percentage point, in a move to facilitate lending. A month ago, the Fed, in a rare move, cut the discount rate, which usually moves in tandem with the Fed's main interest rate lever, to help ease the credit crunch.

Financial markets moved sharply higher in response to the Fed move Tuesday, with the Dow Jones industrials adding more than 100 points within minutes of the Fed announcement. They closed up more than 300.