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Fed slashes interest rates due to recession fears

October 30, 2008 by  

The Fed slashed in the interest rate to 1%The slowing economy and concerns about the availability of credit were at the heart of the Federal Open Market Committee’s unanimous decision to cut the federal funds rate by half of a percentage point on Wednesday.

Following the action, the key lending interest rate has been set at 1 percent. It is the second reduction seen this month, after a similar half-point cut was made on October 8th.

"The intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit," the Fed wrote in a statement.

The committee also promised to "monitor economic and financial developments carefully" with regard to future decisions.

Analysts are divided on whether the Fed is likely to reduce rates even further.

California State University economist Sung Won Sohn told the Associated Press that he thinks the committee will make the "momentous decision" to slash the funds rate to zero if such an action is warranted by global events.

The federal funds rate reflects the interest rate at which banks lend immediately available funds to other banks overnight.
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