In concert with six major central banks, the Federal Reserve today lowered its target for the federal funds rate by 50 basis points in an attempt to prevent further global economic turmoil.
The federal funds rate, which is the rate banks charge each other for overnight loans, was slashed from 2 percent to 1.5 percent. The People’s Bank of China, the Bank of Canada, the Bank of England, the European Central Bank, Sveriges Riksbank (Sweden) and the Swiss National Bank also announced reductions in policy interest rates today.
According to a statement released today by the Federal Open Market Committee, "incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation."
The Fed believed the urgency of the situation justified action before its regularly scheduled policy meeting Oct. 28-29.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1.75 percent. The discount rate is the rate the government charges to make short-term loans to banks.
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