Fed Cuts Key Interest Rate to Lowest Level in 40 Years

The Fed announced it would reduce the federal funds interest rate by one-quarter point in another move to try to stimulate the stalled economy. The Fed had already cut rates a point and a half since Sept. 11.

The federal funds interest rate, which generally serves as a benchmark for business and consumer lending rates, now stands at 1.75 percent, the lowest in nearly forty-years.

With unemployment rates at a six-year high, economic analysts say the Fed’s decision to lower interest rates for the eleventh time is an aggressive move to stimulate a stalled economy.

The Fed also reduced the discount interest rate on the loans made to banks by the Federal Reserve System to 1.25 percent from 1.50 percent. The Fed yesterday cut interest rates on overnight loans between banks by a total of 4.5 percentage points, bringing it to a 40-year low of 2 percent.

The Fed noted that the economy did not show strong signs for an immediate economic recovery and implied it would consider another interest cut in the future.

“Economic activity remains soft, with underlying inflation likely to edge lower from relatively modest levels. To be sure, weakness in demand shows signs of abating, but those signs are preliminary and tentative,” the Federal Reserve said in a statement.

Last month, the National Bureau of Economic Research determined that a recession began in March, and that the Sept. 11 terrorist attacks exacerbated the slowdown into a full recession.

The central bank has reduced interest rates four times since the Sept. 11 attacks. Lower rates reduce borrowing costs for businesses and individuals, stimulating consumer and corporate spending, and serve as an incentive to not leave money in the bank.

The Dow Jones average rebounded slightly after the Fed’s announcement, though closed down thirty-three points at 9,887.37. The broader Standard & Poor 500 Index also slumped 3.17 points to 1,136.76. The technology-laden Nasdaq Composite Index posted a small gain of 9.81 points, closing at 2,001.93.