Fed cuts rate again to hold off recession
Published 6:59 pm Wednesday, January 30, 2008
WASHINGTON — The Federal Reserve delivered powerful new relief to people and businesses squeezed by the ailing economy Wednesday, cutting interest rates ever deeper in an effort to avert or at least soften the blow of a recession.
The half-point reduction approved by Fed Chairman Ben Bernanke and all but one of his colleagues came as President Bush and Congress raced to enact a separate rescue package, including tax rebates for individuals and tax breaks for companies, to help energize an economy in danger of stalling.
Heartened by the Fed’s newfound aggressiveness, Wall Street rallied but then pulled back, still wary. The Dow Jones industrials jumped more than 200 points after the announcement but ended up down 37.47 for the day.
Commercial banks followed the Fed action by lowering their prime lending rate by the same half percentage point to 6 percent, the lowest in nearly three years. That prime rate applies to certain credit cards, home equity lines of credit and other loans.
Before the Fed’s action, the government reported that economic growth had stumbled to a virtual halt. The economy grew at just a 0.6 percent pace from October through December, and for all of 2007 it logged its weakest performance in five years.
The collapse of the housing market, sour mortgage investments and much harder-to-get credit are weighing on people and businesses alike. Foreclosures have hit record highs, and banks have racked up multibillion-dollar losses. The fallout has shaken Wall Street, catapulted the economy to Topic A among worried families and galvanized political figures.
“The economy is hanging by a thread,” said Stuart Hoffman, chief economist at PNC Financial Services Group.
While Wednesday’s interest rate cut was welcome, the Fed’s blunt new assessment of the economy was sobering for everyone from business owners to people worried about debts to anyone without a job or fearful of losing one.
