Further Interest Rate Cut by the Fed (AP) (19-03-2008)

WASHINGTON (AP) -- Taking action to stimulate growth in the U.S. economy, the Federal Reserve lowered a key interest rate by a further 75 basis points on Tuesday, to the exuberance of Wall Street markets, among which the Dow Jones industrial average finished the day up 420.41 points at 12,392.66.

With this move, the federal funds rate has come down to 2.25 percent, the lowest in almost four years, which seemed to convince investors that the Fed is serious about doing all it can to stave off a deep recession.

Immediately, commercial banks announced that they were cutting their prime lending rate to 5.25 percent from 6 percent, the benchmark for millions of business and consumer loans.

The Fed action was designed to lower borrowing costs and boost spending by consumers and businesses and thus increase economic activity.

There was opposition to Tuesday's decision, which was approved on an 8-2 vote. Richard Fisher, president of the Dallas Fed regional bank, and Charles Plosser, president of the Philadelphia regional bank, both dissented, preferring less aggressive moves. It marked the first time there have been as many as two dissents since the fall of 2002.

However, there has been no apparent change in the stance of Bernanke and the majority of Fed members that at the moment the greatest threat to the economy is from a possible recession, which may have already started, rather than from inflation that might be kindled by low rates.

Source: AP