Fed Cuts Key Interest Rate by 3/4 of a Point
WASHINGTON The Federal Reserve reduced short-term interest rates for the sixth time in six months on Tuesday March 18th, capping an extraordinary series of measures it has taken to stabilize financial markets. The cut was smaller than investors had been expecting, though, and exposed some signs of a split among policy makers.
Rescue Tests the Fed's Credibility (March 18, 2008) The central bank lowered its federal funds rate the rate it charges banks for overnight loans by three-quarters of a percentage point, to 2.25 percent, and left the door open to additional rate cuts in the months ahead.
Rescue Tests the Fed's Credibility (March 18, 2008) The central bank lowered its federal funds rate the rate it charges banks for overnight loans by three-quarters of a percentage point, to 2.25 percent, and left the door open to additional rate cuts in the months ahead.
Though it was one of the biggest one-day rate cuts in decades, investors had been betting heavily that the Fed would cut its key rate a full percentage point in response to strong evidence that a recession has begun and to the deepening crisis on Wall Street.
But two members of the Fed's policy-making committee dissented, saying they favoured an even smaller rate cut, and the policy group as a whole expressed new worries about inflation a possible argument against any future cuts।
"Inflation has been elevated, and some indicators of inflation expectations have risen," the Fed said in a statement that accompanied the rate decision. "It will be necessary to continue to monitor developments carefully."
Some saw the cut of three-quarters of a point as a compromise to appease those who wanted less. Others surmised that the Fed may have been reluctant to cut rates further immediately in part because as the rates inch closer to their floor of zero, the Fed leaves itself less room to manoeuvre in case of further financial shocks. From The New York Times
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