- The Washington Times - Tuesday, March 18, 2008

The Federal Reserve this afternoon slashed interest rates by another three-quarters of a percent, waging the central bank’s most aggressive campaign in decades to revive the slumping economy and halt a widening credit crisis.

The Fed noted major downside risks to growth since early this year, including job losses and a sharp weakening of consumer spending. “Financial markets remain under considerable stress, and the tightening of credit conditions and deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” said a statement from the Fed committee that sets interest rates.

The move adds to an arsenal of weapons the Fed has used in recent weeks to revive the economy, including previous rate cuts totaling 1.25 percentage points and a raft of major cash infusions into the credit and mortgage markets to bolster the housing market, banks and securities firms.

The Fed’s decision, while among the biggest rate cuts in a generation, disappointed Wall Street, where many Fed-watchers were hoping for a full percentage-point rate cut.

The Dow Jones Industrial Average had soared nearly 300 points by 2:15 EDT in anticipation of the Fed’s move, but 15 minutes later had erased half that gain. The Dow was up 262 points at 12,236 at 2:45 EDT.

The smaller-than-expected rate cut likely reflected disgruntlement among Federal Reserve bank presidents who remain concerned about inflation pressures due to rising oil and commodity prices. Even the smaller rate cut provoked dissent from two Fed bank presidents — Richard W. Fisher of the Dallas Fed and Charles I. Plosser of the Philadelphia Fed — who preferred “less aggressive action,” the Fed’s statement said.

Even while working feverishly to keep the economy from falling into a severe recession, the Fed acknowledged that inflation remains a stubborn problem.

“Inflation has been elevated,” the Fed noted. While the Fed expects energy and other commodity prices to level out in coming months, it said it would have to remain vigilant and “carefully” monitor price developments.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide