Federal Reserve Cuts Key Rates by Quarter Percentage Point

For the seventh time since the beginning of this year, the U.S. Federal Reserve on Tuesday decided to cut the federal funds rate by one quarter of a percentage point in a bid to boost a sputtering U.S. economy.

The move brought the federal funds rate, which banks charge each other on overnight loans, to 3.50 percent, the lowest level since April 18, 1994.

Meanwhile, the central bank also decided to reduce the largely symbolic discount rate by one quarter percentage point to 3 percent.

"Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy," the Federal Open Market Committee, the decision-making body of the central bank, said in a statement after a meeting on Tuesday.

"Although long-term prospects for productivity growth and the economy remain favorable, 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," it said.

The committee noted that the associated easing of pressures on labor and product markets is expected to keep inflation contained.

According to some annalists, the statement indicated that the Federal Reserve still perceives excessive weakness, rather than inflation, as the main threat to the U.S. economy, triggering speculations that the central bank may consider further moves in its next meeting scheduled for October 2.

With the latest action, the Federal Reserve has cut rates by a total of 3 percentage points since January this year, including five straight half percentage point reductions.

This represented the central bank's most aggressive credit easing campaign in nearly two decades designed to keep the U.S. economy out of a looming recession.

Official statistics show that the United States' gross domestic product registered a sluggish 1.3 percent annual rate in the first quarter this year and later reduced to an anemic 0.7 percent in the second quarter.

Wall Street Stocks Drop Despite Rates Cut

Wall Street stocks dropped Tuesday, with the major indexes falling to the lowest levels in four months, despite the seventh interest rates cut in the year by the Federal Reserve to save the sluggish economy.

The Dow Jones industrial average tumbled 145.93 points, or 1.41 percent, to 10,174.14, the lowest close since April 16.

Broader stock indicators were sharply down. The technology heavy Nasdaq composite index plunged 50.05 points, or 2.66 percent, to 1,831.30. The Standard & Poor's 500 index was off 14.15 points, or 1.21 percent, at 1,157.26. Both indexes were at their lowest levels since April 9.

The market began to plunge after the Federal Reserve decided to cut its key federal funds rate from 3.75 percent to 3.50 percent, its lowest level since Spring 1994. It is the seventh time for the Fed to cut interest rates since the beginning of this year in order to keep the world's largest economy from falling into a recession.

Investors' sentiment was dampened by the Fed's statement on the economy after its policy-setting meeting on Tuesday. The central bank said that consumer demand still exists, but business profits and capital spending continue to weaken and growth abroad is slowing, thus weighing on the U.S. economy.

However, the statement signals the Fed would reduce interest rates further in the near future if the economy remains weak. It had cut rates for six times by 2.75 percentage points in the year, but failed to stimulate the economy and increase corporate earnings.

The NYSE index fell 4.47 points to 598.70, the American Stock Exchange index closed down 3.91 points at 884.01, the Russell 2000 index of smaller companies lost 6.63 points to 472.24.

Declining issues outnumbered advancers by a 4-to-3 margin on the New York Stock Exchange, with 1,338 up, 1,756 down and 248 unchanged.

NYSE volume increased to 1.02 billion shares from 0.89 billion in the previous session.






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