Fed Cuts Rates

In a strong move to provide liquidity and send confidence to the financial markets, the Federal Reserve Open Market Committee (FOMC) this morning slashed the federal funds rate 50 basis points to 3%, and also cut the discount rate 50 basis points to 2.5%.

The FOMC acted between its regularly scheduled August and October meetings. This is its eighth cut this year, dropping the federal funds rate -- the rate at which banks lend each other money overnight -- from 6.5% in January to 3%.      

In its press release, the FOMC said that it "will continue to supply unusually large volumes of liquidity to the financial markets, as needed, until more normal market functioning is restored."  It added, "Even before the tragic events of last week, employment, production, and business spending remained weak, and last week's events have the potential to damp spending further. 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 FOMC, which sets the Federal Reserve's interest rate policy, meets again on Oct. 2, Nov. 6, and Dec. 11. For more on how the Fed may affect the economy, refer to our special feature on The Federal Reserve

Tom Jacobs (TMF Tom9) applauds the Fed move. To see Tom's stock holdings, view his profile, and check out The Motley Fool's disclosure policy.

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