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US Federal Reserve Cuts Key Rates by Quarter Percentage Point
The US Federal Reserve on Wednesday cut the federal funds rate by one quarter percentage point to 3.75 percent in a fresh effort to spur the sluggish US economy.
After a two-day closed door meeting, the Federal Reserve's 17- member Open Market Committee also decided to slash the largely symbolic discount rate by one quarter percentage point to 3.25 percent.
The move marked the sixth time the Federal Reserve reduced rates to prevent the U.S. economy from sliding into a full recession since the beginning of this year. The central bank has previously cut the target five times, each by a half-percentage point.
The new cut, though a smaller one, sent the federal funds rate, which banks charge each other on overnight loans, to the lowest since April 18, 1994.
Although the cut was widely anticipated, analysts had been equally divided over whether the reduction would be a half or a quarter percentage point before the Federal Reserve announcement.
According to three economic reports published Tuesday, consumer confidence, new-home sales and orders for durable goods all showed somewhat stronger results than expected. Some analysts believe that the previous cuts and the positive messages from the three economic reports may have helped make the Federal Reserve less inclined to announce an more aggressive rates cut.
In a brief statement, the Open Market Committee said that "the patterns evident in recent months -- declining profitability and business capital spending, weak expansion of consumption, and slowing growth abroad -- continue to weigh on the economy."
"Although continuing favorable trends bolster long-term prospects for productivity growth and the economy, 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 towards conditions that may generate economic weakness in the foreseeable future," it added.
The committee, the policy-making body of the central bank, also noted that it expects inflation pressures will remain contained.
The assessment is significant because some economists have argued that the most aggressive credit-easing campaign in nearly two decades may be laying the groundwork for higher inflation next year.
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