The
Federal Reserve decided this afternoon to cut a key short-term interest rate to historic lows, making things clear that it will employ all available tools in its effort to save the country from its current economic crisis.
The Fed announced that it would
pull back its target for the federal funds rate to a figure between 0% and .25%, more than .75% lower than the 1% Chairman Ben Bernanke and the Reserve had previously planned to implement. Its the lowest interest rate figure the American public has seen since the Fed began keeping records in 1954. The target rate had only registered at 1% or lower once in that time.
Its unclear how much influence the Feds decision will hold. Generally,
lower interest rates stimulate the economy because they make it easier for the public to acquire money. In todays economy, with credit companies in crisis mode and banks struggling to stay afloat, its less likely that lowered interest rates can spur the same growth.
Lowering interest rates isnt the only thing that Bernanke and the Reserve have done in order to keep the economy from completely going under. Last month, the Fed announced that it would purchase up to $600 billion in direct debt and mortgage-backed securities issues by firms mortgage lenders Fannie Mae and Freddie Mac in order to boost the availability of mortgage loans.
The Federal Reserve released a statement outlining other ways in which the central bank could act as a stopgap for the economy, suggesting that it could buy long-term U.S. Treasury bonds in an effort to directly affect long-term rates.
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