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EXCITING NEWS ABOUT OUR
AREA
Fed cuts interest rates
again
By
Barbara Hagenbaugh,
USA TODAY
WASHINGTON — The Federal
Reserve, battling
recession and a fearsome
credit crunch, cut
interest rates by a
hefty three-quarters of
a percentage point
Tuesday and said the
economic outlook has
deteriorated, suggesting
more rate cuts could be
on the way.
Stock prices took their
biggest jump in more
than five years Tuesday
after the Federal
Reserve cut interest
rates by a dramatic
three-quarters of a
percentage point and
suggested more cuts
could be coming.
In an 8-2 vote, Fed
policymakers cut their
target for short-term
rates to 2.25%, the
lowest in more than
three years. The cut
matched the most
aggressive move since
they began targeting the
rate in 1990. The Fed
has cut the rate from
5.25% since September.
Investors cheered. The
Dow Jones industrial
average rose 420 points,
or 3.5%, the biggest
point gain since July
2002.
President Bush, in a
speech in Jacksonville,
said the economy is in a
"challenging time," but
said the government had
acted swiftly to aid
struggling homeowners in
passing a stimulus plan
in February.
"If there needs to be
further action, we'll
take it," he said.
Fed Chairman Ben
Bernanke and his
colleagues said in a
statement: "The outlook
for economic activity
has weakened further.
Growth in consumer
spending has slowed and
labor markets have
softened. Financial
markets remain under
considerable stress."
They raised concerns
about inflation, saying
price pressures should
ease, but that
"uncertainty" had risen.
Still, the Fed repeated
that it is concerned
about the economy and
said it will "act in a
timely manner as
needed," language
suggesting more rate
cuts could come.
But Carnegie Mellon
professor and Fed
historian Allan Meltzer
says the Fed is taking
too big an inflation
risk by cutting rates so
low. Fed policy "is a
repeat of the mistakes
of the 1970s," he says.
The presidents of the
Fed banks in Dallas and
Philadelphia dissented,
favoring a less drastic
cut. There hadn't been
two dissents at one
meeting since September
2002.
The Fed's cut is good
news for borrowers, but
bad for savers.
Lenders cut the prime
rate, the benchmark for
many home-equity loans.
Credit card rates should
fall over the next few
months. Those with
adjustable-rate
mortgages resetting soon
will also benefit. Yet
amid massive
write-downs, banks have
been slower to pass
along rate cuts and have
raised fees. And for
savers, returns from
conservative investments
will continue to fall.
"Savers are taking it on
the chin,"
Bankrate.com's Greg
McBride says.
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