Announcements by the Federal Reserve Board can influence a consumer’s cost of living — but it’s tough for laymen to understand what the announcements mean. Here’s a plain-language translation of what the Fed’s key rate-setting committee said in its
Oct. 2 announcement:

What the Fed said:
“The Federal Open Market Committee decided today to lower its target for the federal funds rate by 50 basis points to 2-1/2 percent. In a related action, the Board of Governors approved a 50 basis point reduction in the discount rate to 2 percent.”

What that means in English:
The Federal Open Market Committee decided to add enough cash into the banking system to lower the banks’ overnight lending rate by half a percentage point, to 2.5 percent. The Federal Reserve also lowered the less-important rate by which banks borrow directly from the Fed by half a percentage point, to 2 percent.

What the Fed said:
“The terrorist attacks have significantly heightened uncertainty in an economy that was already weak. Business and household spending as a consequence are being further damped. Nonetheless, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.”

“The Committee continues to believe that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.”

What that means in English:
The economy already was weak on Sept. 11, and now it’s even harder to predict what will happen with the economy. Businesses and individuals already were cutting down on their spending, and now they’re cutting their spending even more. Even so, we think Americans will become more productive in the long run and the economy will fare just fine. Things will improve when people stop worrying so much about terrorism. It will help when they hit the malls and spend.

That’s in the long term, though. In the short term, we worry that people will snap shut their pocketbooks and companies will lay off more workers. We might have to cut interest rates even more sometime soon to stimulate the economy. We’ll do what we have to do to keep the economy running smoothly without allowing inflation to get out of hand.

What the Fed said:
“In taking the discount rate action, the Federal Reserve Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, Richmond, Atlanta, St. Louis, Kansas City and San Francisco.”

What that means in English:
When the Federal Reserve Board cut the less-important discount rate, it was in response to requests from eight of the nation’s 12 Federal Reserve banks.

— Posted: Oct. 2, 2001