The Federal Reserve cut interest rates by a half-percentage point today, bringing overnight bank lending rates to their lowest level in 39 years in an effort to keep the U.S. economy from slipping into recession. The U.S. central bank cut its target for the federal funds rate to 2.5% from 3.0%, the lowest level since 1962. The Fed also cut the seldom-used discount rate to 2.0% from 2.5%.
It was the ninth cut in 2001 and the second since the September 11 terrorist attacks on the U.S. Today's action came at the end of the Federal Open Market Committee's regularly scheduled interest-rate session.
The Fed said in a statement that risks to the U.S. economy "are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.
"The terrorist attacks have significantly heightened uncertainty in an economy that was already weak," the Fed statement said. "Business and household spending as a consequence are being further damped. Nonetheless, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate."
In the three weeks after the attacks, consumer confidence plunged by the largest desire since the Persian Gulf War and layoffs reached a nine-year high. The Fed's rate reductions, analysts say, may not prevent the economy from tipping into recession this year, but may keep a downturn from being prolonged. .