Federal Reserve Cuts Interest Rate to Avoid Recession
On Tuesday, the Federal Reserve slashed a key interest rate by three-quarters of a percentage point. This is the latest in moves by the central bank to do their best to restore confidence in the economy and troubled financial markets. The Fed cut its federal funds rate for the sixth time in the past six months, an overnight bank lending rate, to 2.25%. Although many believe the economy is in a recession, this cut comes at a time when the Fed is trying to keep the economy from slipping even lower.
Interest rate cuts are usually viewed as beneficial for the economy since they typically lead to more lending. The federal funds rate affects how much consumers pay on credit cards and home equity lines of credit, as well as the rate paid by many businesses on loans tied to banks’ prime rate. But some experts think lower rates won’t solve the credit crunch paralyzing Wall Street.
Many are worried the rate cuts will cause a continued weakening in the value of the dollar and a further spike in commodity prices — which could lead to higher prices for gas, food and imported goods.
