Tuesday November 17, 2:54 pm Eastern Time
Federal Reserve Cuts Rates
By DAVE SKIDMORE
Associated Press Writer
WASHINGTON (AP) -- The Federal Reserve today reduced short-term interest rates by one-quarter
percentage point, acting for the third time in seven weeks to inoculate the U.S. economy against spillover
from world financial turmoil.
The central bank's monetary policy panel voted to move the benchmark federal funds rate, charged on overnight loans between banks, to
4.75 percent, from 5 percent. It announced the change at the conclusion of a closed-door meeting.
Wall Street reacted immediately. The Dow Jones average of industrial stocks shot up after being down 60 points just before the
announcement. Fifteen minutes later, it was up 34 points at 9,045.
Rates on a variety of consumer and business loans, from credit cards to auto loans, were expected to fall in response to the Fed's action.
The largely symbolic discount rate, which the Federal Reserve charges on its own loans, also was reduced by a quarter point, to 4.5
percent.
''Although conditions in financial markets have settled down materially since mid-October, unusual strains remain,'' the central bank said in
a statement.
Signaling that its policy is now on hold, it added that with today's cut, ''financial conditions can reasonably be expected to be consistent
with fostering sustained economic expansion while keeping inflationary pressures subdued.''
The federal funds rate reduction, to the lowest level in four years, was the third since Sept. 29, when the Fed cut rates for the first time in
three years. That action was aimed at calming gyrating markets on Wall Street and preventing the U.S. economy from lapsing into
recession in reaction to financial turmoil that struck first in Asia, spread to Russia and then threatened Latin America.
The first cut wasn't enough to calm Wall Street, and banks began pulling back from business lending. So, in a surprise move, the Fed cut
rates again Oct. 15.
That touched off a nearly 1,500-point rebound in the Dow Jones average of industrial stocks and economists had begun to speculate that
at today's meeting Fed Chairman Alan Greenspan and his colleagues would defer a further rate cut until further evidence of deterioration
in the U.S. economy.
Anticipating the cut, the Dow topped 9,000 on Monday for the first time since July. Today, in advance of the Fed announcement, it fell
below that threshold.
Two factors argued in support of today's rate cut: the tameness of inflation -- too many rate cuts could stimulate inflation pressures -- and
the nation's sharply increasing trade deficit.
The Labor Department said today that its Consumer Price Index rose a modest 0.2 percent in October. For the first 10 months of the year,
inflation is running at a 1.6 percent annual rate.
Meanwhile, a panel of 29 economists assembled by the National Association for Business Economics is forecasting the trade deficit --
$136 billion last year -- will approach $250 billion this year and $300 billion next year.
That's forcing factories to lay off workers. Since March, their payrolls are down by 200,000 jobs.
AFL-CIO President John J. Sweeney and U.S. Chamber of Commerce President Thomas J. Donohue -- who head the world's largest
labor and business groups respectively -- had urged the Fed to cut rates today.
''There is across-the-board evidence of weakening demand and slowing job growth,'' they said Monday in an unprecedented joint
statement.
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