For the second time in eight days the Federal Reserve has moved to cut interest rates, this time trimming 1/2 point from the federal funds rate, which now sits at 3.0%.The move today means that in eight days the Fed has lowered the federal funds rate by 1.25%. Why? By making these cuts the Fed is using monetary policy to attempt to put more money into the money supply, which should stimulate the economy. The hope is that these moves will help avert, or at the minimum lessen the impact of, a recession.
From The New York Times:
In lowering its benchmark Federal funds rate by half a point, to 3 percent, the central bank acknowledged that it is now far more worried about an economic slowdown than rising inflation, and it left open the possibility of additional rate reductions.
From The Federal Reserve Board of Governors:
Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent.
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