Released: September 19, 2007

Bold cut means savings for consumers

Source: Sue Kirchhoff, John Waggoner and Barbara Hagenbaugh, USA Today

The Federal Reserve’s unanimous decision to slash a key interest rate Tuesday is a dramatic statement that the central bank will do whatever it takes to prevent turmoil in the financial markets and a steep downturn in the housing sector from pulling the country into recession.

By cutting rates so sharply, the Fed indicated it hopes to put a floor under the plunging housing market, steady business hiring and investment, and keep the economy growing as it has for the last six years. A less tangible, but equally important, goal is to restore confidence in the financial markets. Investors got at least a short-term boost after the Fed’s announcement, as the stock market posted its biggest one-day point rally since 2002.

Rate cuts take months to fully work their way through the economy, but consumers and businesses could quickly feel some impacts from Tuesday’s cut in the federal funds rate to 4.75% from 5.25%. The fed funds rate is what banks charge each other for overnight loans.

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