Tags: Fed | Cuts | Key | Rate | 1.25 | Percent

Fed Cuts Key Rate to 1.25 Percent

Wednesday, 06 November 2002 12:00 AM

The monetary easing exceeded Wall Street's expectations, and it marks the Fed's first effort to jump-start the economy this year. It takes the fed funds rate to near the July 1961 level when it averaged 1.17 percent. The Fed didn't target rates at that time, however.

In its statement announcing the cut, Fed policy-makers warned that "greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment."

But, it added that "inflation and inflation expectations remain well contained," indicating that going forward, the risks to the economy are balanced.

"In these circumstances, the committee believes that today's additional monetary easing should prove helpful as the economy works its way through this current soft spot," it said.

"With this action, the committee believes that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals in the foreseeable future."

The Federal Open Market Committee's decision to cut rates for the first time since last December comes amid mixed economic reports that have tended towards the downside.

These include high unemployment, contracting manufacturing, declining consumer confidence and rising concern among investors and the public over possible U.S. military action against Iraq.

Policy-makers were unanimous in their vote to ease policy.

The Fed cut its target for short-term rates 11 times in 2001, a record for a calendar year, to fight the effects of a recession that likely began in last March and was worsened by the Sept. 11 terror attacks.

The bank cut rates at each of its eight scheduled meetings last year and during three impromptu conference calls.

Three of the reductions occurred after the Sept. 11, 2001, terrorist attacks. Until Wednesday's meeting, the FOMC had opted to leave rates unchanged at all of its policy meetings this year.

The FOMC holds eight regularly scheduled meetings a year to direct the open market operations of the Federal Reserve Bank of New York in a manner designed to foster the long-run objectives of price stability and sustainable economic growth.

The FOMC holds its final meeting of the year on Dec. 10.

Copyright 2002 by United Press International.

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The monetary easing exceeded Wall Street's expectations, and it marks the Fed's first effort to jump-start the economy this year. It takes the fed funds rate to near the July 1961 level when it averaged 1.17 percent. The Fed didn't target rates at that time, however. In...
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2002-00-06
Wednesday, 06 November 2002 12:00 AM
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