Fed: Emergency cut

Fed: Emergency cut
Fed strikes in concert with other banks - lowers key rate half-point. Cites 'intensification' of crisis.


NEW YORK (CNNMoney.com) -- The Federal Reserve, working in coordination with other central banks worldwide, enacted an emergency interest rate cut on Wednesday.

The Fed lowered its fed funds rate by half of a percentage point to 1.5%. This rate is the central bank's key tool to affect the economy. Lowering the rate pumps money into the economy by reducing the borrowing cost on a broad range of loans, including credit cards, home equity lines and many business loans.

"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the Fed said in a statement.

This was the Fed's eighth rate cut since September 2007 and the second outside of a regularly-scheduled meeting. The Fed's next monetary policy meeting is a two-day session that concludes on Oct. 29.

The Fed on Wednesday also reduced its discount rate, the level at which it lends money directly to banks and Wall Street firms, by half of a percentage point to 1.75%.

The moves were made in coordination with other central banks around the world including the European Central Bank and Bank of England.

The cut marks the latest attempt by the U.S. central bank to pump cash into the nation's battered credit markets, which have virtually seized up due to upheaval in the financial sector during the past month.

These problems prompted Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson to propose the controversial plan for the government to buy $700 billion in damaged mortgage-backed securities.

The House approved an updated version of the bill on Friday after rejecting an earlier version last Monday. President Bush signed the bill, which the Senate passed on Wednesday, into law Friday afternoon.

CNN