The Federal Open Market Committee yesterday slashed its target for the federal funds rate 75 basis points to 2.25%. The Fed also cut the discount rate 75 basis points to 2.50% from 3.25%.
The market had expected a 100 basis point cut, with some sentiment for a 125 basis point drop in the fed funds rate target.
In its statement announcing the rate change, the FOMC said: “Recent information indicates 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.”
“Inflation has been elevated, and some indicators of inflation expectations have risen. The committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased.”
