Fed Cuts Rates by 1/4 Point

The Federal Reserve cut the key federal funds rate by 0.25 percentage point on Tuesday, bringing it to 3.50 percent, in its continuing attempt to revive the U.S. economy.

The Federal Open Market Committee, the panel responsible for setting the federal funds rate, announced its decision at 2:15 p.m. EDT Tuesday at the end of its regularly scheduled meeting.

The move had been almost unanimously expected by Wall Street economists.

The federal funds rate is a key interest rate that influences the cost of borrowing money for everything from house to cars to refrigerators.

This is the seventh time the Fed has cut its interest rates this year in its attempt to end a dramatic slowdown in the U.S. economy. The series of cuts is the Fed's most aggressive rate-cutting effort since Chairman Alan Greenspan took office in 1987. Before Tuesday's move, the Fed, which began its credit-easing campaign in January, had last cut the funds rate on June 27.

The Fed also cut its mostly symbolic discount rate, the interest that the Fed charges to make direct loans to banks, by 0.25 point to 3.00 percent.

Slowing Growth

In explaining its latest rate move, the Fed said in a statement: "Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy."

Signaling possible future moves, the Fed said the balance of risks going forward remains "weighted mainly toward conditions that may generate economic weakness in the foreseeable future."


Gloom about how long the slowdown will persist has hung over Wall Street like a dark cloud in recent months.

Addressing Congress on July 18, Fed Chairman Alan Greenspan described the economy as still weak and deteriorating in some areas, and was reluctant to be pinned down on when it would recover. ``If I had to make a forecast ... toward the end of this year we will see things improving and clearly so next year,'' he said.

Echoing the notion that the sluggishness could drag on, Atlanta Fed President Jack Guynn told Reuters in an interview earlier this month: ``The process, the adjustment process, is just taking longer than I -- and I think many other people -- thought that it would.'' 

For most of this year, the worst aspects of the economic weakness have shown up in the high-technology sector, which saw the enormous boom of the late 1990s and early 2000 fizzle as demand suddenly plummeted. 

An announcement from Ford Motor Co. on Friday of job cuts and an intention to restructure added to the investment community's dejection about economic prospects as it highlighted worries that the high-tech troubles were spilling over into so-called Old Economy sectors.

-- Reuters and the Associated Press contributed to this report