Fed Cuts Rates by a Quarter-point

The Federal Reserve on Tuesday cut interest rates by 25 basis points in an effort to offset renewed strain in the credit markets and keep the US economy out of recession.

The rate cut was smaller than some in the markets had hoped for. However, it indicates that the US central bank is aware of the increased risk to growth following the relapse in the financial system, while remaining very aware of the risks to inflation.

Fed officials want to prevent financial market distress from tightening the supply of credit to the economy. They are concerned by signs that the credit squeeze is spreading, with increased risk premia extending from housing and finance-related securities to bonds issued by other types of business.

The Fed also sees some tentative signs that consumer spending is softer than it expected.

However, the US central bank believes that a resilient jobs market should help sustain a moderate level of consumer spending.

Fed Cuts Rates by a Quarter-point

Financial Times
12/11/2007 11:22:40 AM