FOMC cuts 75 basis points
Upping the ante of it’s banking bailout, the Federal Reserve cut the overnight rate banks charge one another to borrow, the Fed Funds rate, by 75 basis points.
The reduction in the fed funds rate by three quarters of a point comes after the central bank in an unprecedented move over the weekend opened the discount window to investment banks in response to a the collapse of Bear Stearns. It also guaranteed 30 billion in distressed assets held by Bear Stearns, the venerable American investment bank facing irreversible damage on account of making bad bets on leveraged assets.
In a statement released in conjunction with the interest rate action the Federal Open Market Committee said downside risks to economic growth have elevated since their last meeting in response to tightening credit conditions and continued contraction in the housing sector of the economy.
While inflation pressures remain, the fed said a slowdown in consumer spending and weakening labor market is projected to ease pressure on energy and commodity prices and suppress strains on capacity utilization.
Here is the statement from the Federal Reserve in full followed by a source link.
Federal Reserve Press Release
Release Date: March 18, 2008
For immediate releaseThe Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.
Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.
Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.
Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.
2008 Monetary Policy Releaseshttp://www.federalreserve.gov/newsevents/press/monetary/20080318a.htm
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