The Federal Reserve slashed benchmark interest rates by a half point in an agressive move to prevent the economy from moving into recession and to ease the pains of the housing bubble. The decision to cut the overnight federal funds rate from 5.25% to 4.75% was unanimous. This is the lowest level since May of 2006 and the first time the Fed has cut interest rates since June 2003. It was the first 1/2 point cut since November of 2002.
The Fed also lowered its discount rate it charges banks for direct loans by
the same percentage.
"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," the Fed said in a statement
outlining its decision.
"The committee will continue to assess the effects of these and other
developments on economic prospects and will act as needed to foster price stability
and sustainable economic growth," it said.
The stock markets responded favorably by moving higher as most analysts had
only predicted a 1/4 point cut. The Dow was up nearly 2.4% to 13,723 in late
trading Tuesday.