Fed cuts interest rates

The US Federal Reserve has decided to cut its benchmark interest rate by a 25 basis points to 4.25% to prevent the housing slump and credit squeeze from undoing the six-year expansion.

This was the third time in a row that policy makers decided to cut its federal funds rate.

The Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, by a 25 basis points to 4.75%.

The gap with the federal funds rate remains half a point. Some economists had predicted the Fed would reduce the spread between the two.

The change "should help promote moderate growth over time,'' the Federal Open Market Committee (FOMC) said in a statement after meeting on Tuesday in Washington.


Following is the press release issued by US Federal Reserve

The Federal Open Market Committee decided to lower its target for the federal funds rate 25 basis points to 4.25%.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

In a related action, the Board of Governors unanimously approved a 25 basis point decrease in the discount rate to 4.75%. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.