Fed Cuts Key Interest Rate By One-Half Point
Wednesday, January 3, 2001; 1:32 PM
The Federal Reserve, faced with a rapidly slowing economy, unexpectedly cut a key interest rate Wednesday by one-half point in an effort to avert a serious downturn. It was the first decrease in rates in two years.
The rate cut was unusual in that it occurred between meetings of the central bank's interest-rate committee. The last time the Fed changed rates between meetings was a quarter-point cut in October 1998, when the central bank was moving aggressively to counter worldwide financial turmoil caused by the Asian currency crisis.
The Federal Open Market Committee, which includes Fed Chairman Alan Greenspan, Fed governors and five of the 12 presidents of Federal Reserve banks, is scheduled to meet Jan. 30-31 to review interest rates.
The Fed said it was cutting its target for the federal funds rate – the interest banks charge each other on overnight loans – to 6 percent from 6.5 percent, a nine-year high.
It also cut its mostly symbolic discount rate by a quarter point to 5.75. The Fed said it stands ready to cut the discount rate by another quarter point to 5.50 percent on the request of Federal Reserve banks.
"These actions were taken in light of further weakening of sales and production and in the context of lower consumer confidence, tight conditions in some segments of financial markets and high energy prices sapping household and business purchasing power," the Fed said in a statement, explaining its decision. |
