The U.S. Federal Reserve delivered a widely-expected quarter point cut to a key interest rate on Tuesday in a decision that was received with disappointment on Wall Street. Fed Chairman Ben Bernanke and all but one of his colleagues agreed to cut the federal funds rate by one-quarter percentage point to 4.25 percent in response to sluggish national economic growth and continuing weakness in the housing market. The sole opponent, Eric Rosengren of the Federal Reserve Bank of Boston, sought a half-percentage point cut “Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks,” the Fed said in a statement explaining its decision to cut rates again. But despite the cut, which was in line with general predictions, Wall Street reacted badly. The Dow Jones industrial average fell more than 200 points in the trading hours following the announcement. Commercial banks, including Wachovia and Wells Fargo, responded to the cut by lowering their prime lending rate by a corresponding amount, to 7.25 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans. The rate cut, the third this year, appeared to be prompted by steadily worsening economic conditions. The federal funds cut was joined by a decision to lower the Fed's lending rates to banks by one-quarter percentage point. That was the fourth cut to the discount rate since mid-August. “Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,” the Fed said in its statement. The Fed is next scheduled to meet at the end of January and will be faced with the continuing challenge of weighing pressure from investors for deeper cuts with the central bank's duty to manage inflation. “Elevated energy and commodity prices, among other factors, may put upward pressure on inflation,” the Fed said.
