The Federal Reserve Board cut interest rates by a half-point Wednesday, the first cut in 11 months. Wall Street analysts had expected a cut of only 25 basis points, which equals a quarter of a point.
The cut drops the federal funds rate, which is the rate of interest banks charge each other for overnight loans, to 1.25%.
In cutting rates for the first time in 11 months, Fed chairman Alan Greenspan and his colleagues recognized that their insistent rate-cutting spree last year was not enough to generate a sustained economic recovery.
Last year, the Fed issued 11 cuts that lowered rates to a 40-year low, but this year it has been reluctant to act. At their August meeting, the Fed indicated that it was aware leaving the rates unchanged would weight the risks toward conditions that may generate economic weakness.