The Federal Reserve Board of Governors voted to reduce the benchmark Federal funds target rate to 2.25% from 3.0% today. This marks the Fed's sixth move in 6 months, and its second super-sized 75 basis point cut in two months. The Fed began cutting from 5.25% with a 50 bps move on Sept. 18, which was followed by two 1/4-point cuts on Oct. 31 and Dec. 11., a 75 bps move Jan. 22 and a 50 bps move Jan. 30.

The Fed's statement says, "Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters."

It continues, "Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters.... It will be necessary to continue to monitor inflation developments carefully.... Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability."

Money fund yields, as usual, will follow the Fed funds lower. Our Crane 100, currently at 3.14%, should decline below 3.0% by next week, and should stabilize somewhere around 2.40% in about 37 days (the average maturity of money funds).

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