Federal Reserve Slashes U.S. Rates to Stave off RecessionThe Federal Reserve unexpectedly cut U.S. interest rates by a half point percentage on Wednesday in an effort to starve off a looming economic recession.The federal funds rate, a key interest rate that banks charge each other on overnight loans, to 4.5 percent. Meanwhile, the discount rate on Fed loans to banks will fall to 4.0 percent. The central bank announced the cut, the fourth of its kind this year, after an emergency conference call of its chief policy- making body, the Federal Open Market Committee. It was the second time this year that the Federal Reserve decided to change rates between scheduled meetings of the committee. The central bank cited a number of reasons for the move, including sluggish business investment, eroding consumer confidence and a slide in the stock market. It said in a statement that progress was being made in reducing overstocked inventories while consumer spending and housing were holding up reasonably well. "Nonetheless, capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward," the Fed said. "This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, threatens to keep the pace of economic activity unacceptably weak," it said. The Fed's previous three cuts this year, with the last one on March 20, totaled 1.5 percentage points. Stock markets soared on the news about fresh Fed cut on rates. By early afternoon the Dow Jones industrial average was up 410 points and the Nasdaq had gained 178 points, topping the 2,000 level for the first time since March 15. |
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