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Fed Makes Aggressive Rate Cut in Bid to Loosen Credit Markets

In a new move to stem the impact of the financial crisis, the Federal Reserve cut the federal funds rate by half a percentage point to 1 percent Wednesday. Krishna Guha, chief U.S. economics correspondent for the Financial Times, discusses the move.

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  • JIM LEHRER:

    Today's Federal Reserve decision to cut interest rates again. Here to explain the what's and why's of the action is Krishna Guha, chief U.S. economics correspondent for the Financial Times.

    Krishna, welcome. Remind us again what specific rate it was that was cut today.

  • KRISHNA GUHA, Financial Times:

    So, Jim, this is the Fed funds rate. It's the basic underlying interest rate in the economy. It was 1.5 percent. The Fed cut it by half a percentage point. It's now 1 percent.

  • JIM LEHRER:

    And the reasoning behind that was what?

  • KRISHNA GUHA:

    Well, the Fed is going all-out to try to offset some of the severe tightening in credit conditions that's happened over the last couple of months with all the turmoil in the financial sector.

    By reducing the interest rate, it hopes to bring down the actual cost of borrowing for people like you and me and for companies out there in the economy.

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