The Federal Reserve Board of Governers announced a reduction in its benchmarket Fed funds target rate by 0.25% to 2.00%. The Fed has reduced short-term interest rates by 3.25% since the Subprime Liquidity Crisis spontaneously began in August 2007. Money market rates, which follow the Fed, should move towards 2.25% over the next several weeks. The Fed also cut the less important discount rate to 2.25%.
The Fed's statement says, "Recent information indicates that economic activity remains weak.... Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."
"Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters.... Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully," says the Fed.
It adds, "The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."
