The Federal Reserve made an emergency cut in the interest rate yesterday, cutting this key benchmark rate by 0.75 per cent. This would be the first time for such an emergency move since 2001 when stock markets fell due to terrorist attacks.
Throughout the world from Hong Kong to London, stock markets plunged as reports out of the US about recession and even a drop in US unemployment worried investors.
The new Fed rate is 3.5 per cent down from 4.25 per cent. According to the Federal Open Market Committee, which makes such decisions, the move was necessary to overcome a weakening economic outlook in the US.
According to a press release issued by the Federal Open Market Committee, "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, income information indicates a depending of the housing contraction as well as some softening in labor markets."
The committee plans to monitor inflation closely, though it expects for inflation to be moderate in the coming quarters.
The move will make borrowing more affordable to borrowers. This rate is a decrease in the cost of borrowing that commercial banks will receive and then pass on to their customers.
