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Fed ready to slash key rate

Mon., Dec. 15, 2008

WASHINGTON – With the country spiraling deeper into recession, the Federal Reserve is ready to slash its key interest rate – perhaps to an all-time low – in hopes of cushioning some of the economic fallout felt by many struggling Americans.

To battle the worst financial crisis since the 1930s, Fed Chairman Ben Bernanke and his colleagues already have ratcheted down their main lever for influencing the economy – the federal funds rate – to 1 percent, a level seen only once before in the last half-century.

The Fed opens a two-day meeting today to assess the economy and decide its next move on rates. Another reduction in the funds rate, the interest banks charge each other on overnight loans, is all but certain to be announced Tuesday.

Many economists predict the Fed will cut its rate in half – to just 0.50 percent. A few think the Fed could opt for an even more forceful action – lowering rates by a whopping three-quarters of a percentage point or more. If that larger cut occurs, it would be the lowest on records that track the monthly average of the targeted funds rate going back to 1954.

Even an aggressive rate reduction won’t turn the economy around, analysts said.

“It is not so much going to give the economy a big push forward. It’s more a case of trying to help the economy from being pushed further backward by all these negative events,” said Stuart Hoffman, chief economist at PNC Financial Services Group.


 

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