Tuesday, January 22, 2008

Fed cut 75 bps in an emergency move -- inter meeting cut

-- The Federal Reserve cut the benchmarkinterest rate by three quarters of a percentage point, its first emergency reduction since 2001, after stock markets tumbled from Hong Kong to London amid increasing signs of a U.S. recession. --The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committeesaid in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990. --The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets. -- Today's so-called inter-meeting rate cut is the first forthe federal funds rate since Sept. 17, 2001, when the Fed loweredborrowing costs in the aftermath of the terrorist attacks sixdays before. That was the third emergency reduction in a year which saw the last U.S. recession.

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