The Federal Reserve slashed a key interest rate to match its lowest level in decades today, as the central bank continued pulling out all possible stops to try to contain the economic fallout of the financial crisis. The Fed's policymaking committee this afternoon cut the federal funds rate, at which banks lend to each other, to 1 percent, from 1.5 percent. The last time the rate was that low was in the aftermath of the dot-com bubble in the early 2000s; the Fed's target rate hasn't been lower than 1 percent since the 1950s. The stock market, which had been up modestly before the announcement, fell immediately thereafter. The lower rate is meant to stimulate the economy and guard against a deep and long recession; it followed an emergency rate cut just two weeks ago. In normal times, Fed rate cuts make it cheaper for businesses to borrow money to expand and for consumers to get auto loans, home mortgages, and credit card debt. But in the current environment, with banks reluctant to lend, its impact is uncertain. “The pace of economic activity appears to have slowed markedly,” said the Federal Open Market Committee in a statement, “owing importantly to a decline in consumer expenditures.” It also noted that business spending is falling off and exports appear poised to weaken. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
