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Economy in Brief

FOMC Lowers Fed Funds Rate by 75 Basis Points
by Tom Moeller March 18, 2008

Today, the Federal Open Market Committee lowered the Federal funds rate by 75 basis points to 2.25% in a move that was somewhat more aggressive than generally expected. The funds rate was last this low early in 2005 and it was the largest cut since this past January.

The discount rate was lowered another 75 basis points to 2.5% after this weekend's cut from 3.5%.

The Fed indicated that "the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters."

The Fed further indicated that "Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain."

Voting against taking the action was Richard W. Fisher, President of the Federal Reserve Bank of Dallas and Charles I. Plosser, President of the Philadelphia Fed, who preferred less aggressive action at this meeting.

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

Market Bailouts and the "Fed Put" from the Federal Reserve Bank of St. Louis can be found here.

Booms and Busts: The Case of Subprime Mortgages from the Federal Reserve Bank of Kansas City is available here.

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