The Federal Reserve, in an emergency meeting on Tuesday, slashed the key rate to 3.5 percent, citing a weakening economic outlook. The move marks the Fed’s biggest rate cut — three quarters of a point — in more than 20 years.
As fears of a recession looms, the Fed said the rate-cut was to help restore confidence in the U.S. economy.
“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,” the Fed said in a public statement. “Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”
NATIONAL ASSOCIATION OF REALTORS® Chief Economist Lawrence Yun says the 75-basis-point cut in the Fed funds was a good step in giving the economy the boost and sending a clear message to both the market and to consumers.
“This strong rate cut will help lower mortgage interest rates and lessen the burden of adjustable-rate loans that are resetting in the current environment,” Yun says. “It also could help stimulate business investment in the wake of market uncertainties. We commend the Federal Reserve Board on its bold action, but at the same time we urge it to keep a close watch to see if additional action is needed.”
The Fed also approved a decrease in the discount rate — which, among other things, impacts how consumers pay home equity lines of credit — to 4 percent.
The Fed’s next scheduled meeting is on Jan. 30, where analysts say another rate-cut may be likely.
Source: REALTOR® magazine online and Dow Jones Newswire (1/22/08)