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Economy in Brief

Federal Funds Rate Lowered to 4.25%
by Tom Moeller December 11, 2007

In a widely expected move, the target interest rate for Federal funds was lowered twenty five basis points to 4.25% at today's meeting of the Federal Open Market Committee.

Voting against the decision was Eric S. Rosengren who preferred a 50 basis point cut.

The discount rate also was reduced twenty five basis points to 4.75%.

The Fed's rationale for today's move was that recent data indicated a slowing in the rate of expansion due to "intensification of the housing correction and some softening in business and consumer spending." Moreover, strains on financial markets were viewed to have increased.

Regarding price inflation, the FOMC judged "that some inflation risks remain, and it will continue to monitor inflation developments carefully."

For the complete text of the Fed's latest press release please follow this link.

Other indicators of the current stance of U.S. monetary policy portray one of general ease. -- Easy - The yield curve already has steepened due to the decline in short term interest rates. This liquidity measure is not, however, near the most liquid of stances possible. -- Easy - The dollar's foreign exchange value is signaling an easy posture, down by roughly one-third since its 2002 high. -- Easy - Commodity prices are another signal of ease, nearly doubling since a 2002 low. -- Mixed - A mixed message is coming from the money supply measures. Growth in M2 has accelerated to a not too fast 6.3% rate of growth while growth in the monetary base has drifted lower to 2.2%. -- Tight - While down, the level of the "real" Fed funds rate still is high.

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