The U.S. Federal Reserve (Fed) on Wednesday announced it would cut the federal funds rate by a quarter-point, bringing the key interest rate to the lowest level since late 2004 – 2 percent. The Fed announcement came after a two-day regular meeting and marked the seventh consecutive rate cut since last September, when worsening credit conditions encouraged the central bank to begin trimming the rate to ward off a recession and stimulate growth. The cut will translate into a lower prime lending rate, meaning lower borrowing costs throughout the U.S. economy. While the quarter-point cut was less aggressive than some of the cuts offered up by the Fed since last September, it was in line with Wall Street expectations. In its comments, the Fed said it would “act as needed to promote sustainable economic growth and stability,” a statement some interpreted to mean that the central bank is as worried about weak growth as it is the risk of higher inflation. The cut was opposed by two members of the Fed, both of whom argued for no change in rates. While Wall Street analysts don't expect any more rate cuts in the near future, some are concerned that the aggressive moves already made could conflict with the Fed's mandate to control inflation. For its part, the Fed said it expected inflation to moderate in coming months, while acknowledging that “uncertainty about the inflation outlook remains high.” The statement added that it would be necessary to “continue to monitor inflation developments carefully.” On the overall economy, Fed Chairman Ben Bernanke and his colleagues said in their statement that “economic activity remains weak,” an assessment borne out by GDP figures released Wednesday showing a mere 0.6 percent growth rate in the January to March quarter. “Financial markets remain under considerable stress and tight credit conditions and deepening housing contractions are likely to weigh on economic growth over the next few quarters,” the Fed statement said.
