By ,
Published January 13, 2015
The Federal Reserve cut its key federal funds rate by one-half point Monday, to 3 percent, its lowest level in nine years.
A few hours later, the European Central Bank (ECB) cut its key interest rate by a half percentage point in an unexpected move.
The Fed rate cut was the eighth this year in the Fed's effort to stave off a recession. The Fed's Open Market Committee acted in advance of its regularly scheduled interest-rate session, Oct. 2.
The Fed action came after an emergency conference call among Fed policy-makers at 7:30 a.m. EDT, two hours before Wall Street would open for the first time since Tuesday's terrorist attack.
In a related action, the Fed Board of Governors approved a half-point reduction in the discount rate, which the Fed charges on loans to banks, to 2.5 percent. The Fed last week invited banks to make full use of the discount window if they were facing unusual withdrawal problems because of disruptions following the bombing of the World Trade Center in the heart of New York's financial district.
The decision by the ECB, which cut rates to 3.75 percent, was only the third cut this year by the bank. It said it was coordinating its efforts with the Federal Reserve in an attempt to ward off any economic effects of the terror attacks on the United States.
A Fed spokeswoman said the Federal Open Market Committee, the policy-making group that sets interest rates, began its 25-minute conference call with a moment of silence for victims of the attack.
The Fed rate cut was the biggest effort so far by U.S. authorities to instill confidence in a badly shaken financial system.
In a statement explaining its action, the Fed said it would ``continue to supply unusually large volumes of liquidity to the financial markets as needed until more normal market functioning is restored.''
Analysts predicted the Fed could keep cutting rates until the markets regain confidence.
"This rate cut is just a down payment with additional cuts on the way,'' said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.
The central bank of Canada also announced Monday that it was cutting a key interest rate by one-half percentage point as well and some analysts predicted more coordinated rate reductions from major economic powers in the days to come.
"Part of the problem is that global investors, who are huge players in our bond and stock markets, are nervous,'' said Mark Zandi, chief economist at Economy.com. ``If central banks across the globe are cooperating and coordinating their actions, that will help smooth out some of the panic selling.''
The action by the Fed was followed immediately by announcements from major banks that they will lower their prime rate, the benchmark for millions of business and consumer loans, by a similar half-point, to 6 percent.
Analysts applauded the half-point rate cut, saying it was the right move to try to bolster the economy and financial markets.
"This is an encouraging sign that the Fed is there to protect the economy and the banking system,'' said Richard Yamarone of Argus Research Corp.
The Fed signaled that if further rate cuts are needed it will provide them, saying the balance of future risks remains tilted toward economic weakness.
"Even before the tragic events of last week, employment, production and business spending remained weak, and last week's events have the potential to damp spending further,'' the Fed said in its statement.
To avert a full-blown downturn, the Federal Reserve has slashed interest rates seven times this year beginning with five half-point cuts in the funds rate followed by two quarter-point moves on June 27 and Aug. 21.
Reuters and the Associated Press contributed to this report.
https://www.foxnews.com/story/fed-cuts-rates-by-1-2-point-europe-follows