Fed Cuts Interest Rate by 0.75%
The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, cut a key interest rate by three-quarters of a percentage point today (Jan. 22), the biggest one-day move by the central bank in recent memory, according to The Associated Press.
The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5%, down by three-fourths of a percentage point from 4.25%.
The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the U.S. It marked the biggest one-day move by the central bank in recent memory.
The Fed decision was taken during an emergency telephone conference with Fed officials on Monday night. Those discussions occurred after global financial markets had plunged Monday as investors grew more concerned about the possibility that the U.S., the world's largest economy, could be headed into a recession.
In a brief statement, the Fed said it had decided to cut the federal funds rate “in view of a weakening of the economic outlook and increasing downside risks to growth.”
The central bank said that the strains in short-term funding markets have eased a bit, but “broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”
The move caught financial markets by surprise. Many had expected the central bank would wait until its meeting next week to make any move in interest rates. The Fed made the move before markets had opened in the U.S., hoping that the bold move would limit the decline in U.S. stocks.
Before today's move, the Fed had cut interest rates three times beginning in September, the month after a severe credit crunch had roiled Wall Street and global financial markets. The Fed cut the funds rate by a half-point in September and then by smaller quarter-point moves in October and December.