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Fed announces surprise rate cut
By • Bankrate.com
In
the wake of plummeting stock prices, lackluster holiday sales and
declining consumer confidence, the Federal Reserve Board fired off
a dramatic and unexpected one-half of one percentage point interest
rate cut.
The Fed's Federal Open Market Committee,
which sets interest rate policy, wasn't scheduled to meet until
Jan. 30 and 31. But committee members, including Chairman Alan Greenspan,
decided swift action was required because the economy has degenerated
so quickly since their last gathering Dec. 19.
Officials will lower the federal funds
rate to 6 percent from 6.5 percent and reduce the federal discount
rate to 5.75 percent from 6 percent. They said they could lower
the discount rate an additional one-quarter of a percentage point,
or 25 basis points, if needed.
The FOMC also reiterated that the risk
of excessive econmic weakness outweighs the risk of accelerating
inflation. Prior to December, officials had said for months that
inflation was the primary threat.
The moves substantially change the playing
field for borrowers, who will now see rates on everything from home
equity loans to credit cards fall much sooner than anticipated.
Rates for certificate of deposit holders and mortgage shoppers should
decline further than they already have, too.
"These actions were taken in light of
further weakening of sales and production, and in the context of
lower consumer confidence, tight conditions in some segments of
financial markets, and high energy prices sapping household and
business purchasing power," said the
FOMC statement accompanying the release of the news. "Moreover,
inflation pressures remain contained."
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