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The move was the tenth cut in the federal fund rates this year. Economists
are callling the decision an aggressive attempt to rejuvenate the economy
after the September 11 terrorist attacks.
The federal funds rate, a benchmark for short-term interest rates,
is the rate banks charge for overnight loans. It now stands at 2 percent.
The central bank today said it hoped the rate cut could help heal weaknesses
in the economy.
"Heightened uncertainty and concerns about a deterioration in business
conditions both here and abroad are damping economic activity," the
Fed said in a statement.
The economy had been weakening before the Sept. 11 attacks, but has
sunk dramatically since then, with consumer confidence and manufacturing
levels declining and unemployment numbers on the rise. Ideally, lower
rates reduce borrowing costs for businesses and individuals, bolstering
consumer spending.
The Fed has lowered rates three times since the attack.
Industry insiders had expected today's rate cut, but did not know whether
the Fed would cut a full half a point or a more conservative quarter-point.
The stock market reacted positively to the change, with stocks rallying
soon after the announcement.
The technology-heavy Nasdaq Composite rose 41 points, or 2.3 percent,
to close at 1,835. The Dow Jones industrial average climbed 150 points,
or 1.6 percent, to 9,591, and the broader Standard & Poor's 500 Index
rose 16 points to 1,118.
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