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Fed Employs Bold Rate Cut to Boost Economic Growth

The Fed slashed the target for a key interest rate to a record low of zero percent to a quarter point on Tuesday. Financial analysts examine the possible impact of the Fed's move.

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  • JEFFREY BROWN:

    The Federal Reserve continued its move into uncharted territory today with another big rate cut, a vow to use all of its various powers to restart the economy, and a forecast that exceptionally low interest rates will remain for some time.

    We discuss all of that now with Laurence Meyer, a former member of the Federal Reserve Board of Governors. He's now vice chairman of Macroeconomic Advisers, an economic consulting and forecasting firm.

    And William Ford, former president of the Federal Reserve Bank of Atlanta, now professor of finance and monetary policy at Middle Tennessee State University.

    Well, Larry Meyer, the Fed went even further than expected today. How do you interpret the move?

    LAURENCE MEYER, former governor, Federal Reserve: Well, they pulled out all stops today. They did everything we would have expected them to do relatively soon at once and immediately. And it reflects how bad the state of the economy is.

    Even if they go to the extreme with their policy instruments here, they won't get very favorable outcome, but they have to do the best they can, so they lowered the funds rate from 1 percent to a range of zero to 25 basis points, more aggressive than the markets expected.

    They indicated that the rate would be kept exceptionally low for some period, again unexpected, using what we call commitment language, about how they're going to have the rate in the future. And then, finally…

  • JEFFREY BROWN:

    Because they didn't have to say that, right?

  • LAURENCE MEYER:

    They didn't have to say that. I mean, they're trying to convey to the markets that they're prepared to keep rates very low for some period of time.

    And then, third, they indicated that they are not out of business. They still have other instruments that they can use, particularly targeted purchases of longer-term government securities and private assets.