Fed Cuts Rate Again
December 20, 2007
In an attempt to thwart off a recession, the Federal Reserve cut a key interest rate on 11 December. This is the third such cut to come from the Federal Reserve in the past three months. The new rate stands at 4.25 percent which amounts to a reduction of one-quarter point over what it was the day before.
In addition Fed officials mentioned that further cuts were possible if more problems arise in the already bad housing market or if a crisis should arise with mortgage lending.
The upside of this is that commercial banks are expected to match the latest reduction by reducing their prime lending rate, which would reduce this benchmark rate for millions of consumer and business loans to 7.25 percent.
The Federal Reserve also announced that it was reducing its discount rate by a quarter-point to 4.75 percent. The discount rate is the interest the Fed charges to make direct loans to banks.
It is hoped that this reduction will encourage banks to borrow more freely from the Fed at a time when there are worries that a rising number of defaulted loans will prompt banks to constrict credit conditions too severely, which, of course, would only add to the economic problems facing the nation