Fed Cuts Base Rate Half Point to 4.75%

Sept. 18, 2007
First rate cut in four years

In what analysts called a bold move to stimulate an economy imperiled by housing and credit market stress, The Federal Reserve, on Sept. 18, slashed its base federal funds rate by a half point to .75%,

he Federal Open Market Committee, in a unanimous decision after a one-day meeting, also cut its discount rate for direct central bank loans by 50 basis points to 5.25%.

"Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time," the FOMC said. It said that despite "moderate" economic growth in the first half, tighter credit conditions create a "potential to intensify the housing correction and to restrain economic growth more generally."

The cut in the federal funds rate is likely to lead to a lowering of borrowing costs across the economy, for consumers and businesses alike. The Fed, which has not cut rates since 2003, had held this rate at 5.25% since June 2006.

"I think the Fed delivered a healthy dose of monetary medicine to the economy and housing market," said Scott Anderson, senior economist at Wells Fargo."I think it will be viewed as an aggressive move by the Fed to avert an economic recession."

Copyright Agence France-Presse, 2007

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