Fed cuts interest rates by 25 bps to 4.25%: Moneycontrol.Com

Fed cuts interest rates by 25 bps to 4.25%

The US Federal Reserve lowered its benchmark interest rate by a quarter point to 4.25 percent, while signaling that it is open to further cuts if the housing slump and credit squeeze worsen.

The Central Bank also cut the discount rate by a quarter point to 4.75 percent, counter to speculation among investors that the Fed would make a deeper reduction.

The FOMC said, “Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.”

The Fed dropped language from its previous statement that risks of slower growth and faster inflation were ``roughly'' balanced. In a statement the FOMC said that recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.

It added, “Lower borrowing costs should help promote moderate growth over time.”

The FOMC further said that lower borrowing costs should help promote moderate growth over time. Policy makers are actively considering steps to ease credit in financial markets, and haven't ruled out moves to increase liquidity before their next scheduled meeting on January 29-30.

According to CNBC analyst, Steve Leisman, there is a fairly widespread disappointment with the Fed. He said, “Not just here in the instinctive reaction of the markets, but I am talking about the considered opinion of seasoned Fed observers. The problem was not by the way - I don’t believe - with the quarter point rate cut. They did cut the overnight lending rate by a quarter to 4.25%.

It left the discount window unchanged. That is the rate where banks can borrow directly from the Fed with a wide variety of securities. That is the disappointment that I am taking up anyway. Meanwhile the Fed continued to raise concerns about inflation and did not say that the primary risk to the economy is for weakness instead of growth.”


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