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Fed cuts interest rate half point

The Federal Reserve reduced its benchmark interest rate by an unusually large one-half percentage point on Tuesday in an effort to stop the slump in the housing and financial markets from bringing down the overall economy.
The interest rate change, to 4.75 percent from 5.25 percent, was the Fed’s first rate reduction of any kind in four years, the steepest in almost five years and its most abrupt reversal of course since January 2001, when policy makers sharply cut rates just before the last recession during an unscheduled emergency meeting.
For consumers, the rate cut could mean lower borrowing costs for mortgages and automobile loans. But the impact may be muted, because investors remain concerned about the credit quality of mortgages and other long-term loans.
The move, which analysts describe as a brazen attempt to restore confidence, is Fed Chairman Ben Bernanke’s first major test since taking over from Alan Greenspan in early 2006.
According to the New York Times, policy makers warn that they still have lingering concerns about inflation, which would weigh against further stimulation of the economy with cheaper money. But CBS reports: “Analysts believe the Fed has room to cut rates even further because inflation pressures have been easing.? CBS mentions the Labor Department’s report Tuesday that wholesale prices fell by 1.4 percent in August, the biggest drop in 10 months and much larger than the 0.3 percent fall that had been expected.
The New York Times reports that, “Many Wall Street economists place the odds of a recession at about one-in-three or somewhat higher,? while Greenspan has placed the odds at slightly more than the one-in-three that he estimated earlier this year.


New York Times: