Fed cuts by half-point, but may not be done yet (MarketWatch) (31-01-2008)

In an attempt to avoid a downward spiral for the U.S. economy, due to the financial market turmoil and the weakness in the housing market, the Fed acted aggressively and cut both the federal funds and the discount rate. Signaled it was ready to do more as needed.

The central bank lowered the federal funds rate by 50 basis points to 3%, in line with market expectations for a total of 1.25 percentage points in eight days, almost unheard of in central banking history.

The bold move has been implemented in hopes that the aggressive rate cuts will help the economy through this period of weakness although some economists believe the move reflects concern on the part of the central bank that the economic picture could get even darker in the short-term, while others are worried that the central bank may be too late to rescue the economy from a long slump.

The Fed also announced that it was cutting its discount rate, the interest it charges on direct loans it makes to banks, by a half-point to 3.5%.

In a statement, the Fed said that downside risks to growth remain, and that it would act in a timely manner to address them..

Source: MarketWatch