The Federal Reserve Tuesday lowered its discount rate by 0.75 point, an intervention to contain the credit crunch that threatens to plunge the United States into recession.
This measure puts the federal funds rate from 3% to 2.25%, which is the lowest level since December 2004.
This decrease of 75 points, though agressive, may disappoint Wall Street, which wanted a reduction of one full percentage point.
The Monetary Policy Committee of the Fed, the Federal Open Market Committee, or FOMC, voted 8 to 2 against the reduction in the federal funds rate. The Fed also lowered its discount rate by 75 basis points to 2.5%.
"Recent information indicates that the outlook for economic activity have again deteriorated," the Fed noted in a statement. It mentioned in particular the weakness of household spending and labour markets. "The financial markets are still under pressure," said the Fed, noting that the worsening of the deterioration of the housing sector could weigh on the economy.
The Fed also stressed that the risks to the growth remain and that it will act "in due time" if necessary, thus leaving the door open for further rate cuts.
A few days ago, the economists called the central bank to cut interest rates by only 50 basis points. This was already seen as a drastic action, especially after the rate cuts of 125 basis points in total made by the Fed in the space of only eight days in January.
"The uncertainty about inflation prospects have intensified," the Fed said, adding that it would monitor these perspectives "closely".
