Federal Reserve cuts rate by 50-basis point to 1.00%...

The worst financial crisis in 70 years has forced the Federal Reserve to employ all the weapons in its arsenal — including cutting interest rates to near historic lows — to 1.25% and try to keep the country from plunging into a deep recession. A deep rate cut from the Federal Reserve and other central banks Wednesday will have little immediate impact on consumer borrowing rates, but sends a clear signal that central bankers are working together to quell an intensifying financial panic threatening the world economy.

The Fed slashed its target for short-term rates a .25 percentage point to 1.25%, the lowest in more than four years. Fed policymakers voted unanimously during an emergency meeting Tuesday night to approve the cut.

"The pace of economic activity has slowed markedly in recent months," the Fed said in a statement. "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."

The move lowers the target for the federal funds rate, what banks charge each other for overnight loans. The rate is a benchmark used by lenders in setting rates for consumer and business loans.


Some economists said the Fed's action wasn't enough to rescue the United States from recession, but called it one of a series of drastic steps to prevent the downturn from becoming much more serious.

"The playbook to avoid depressions says rates need to be as close to zero as possible, banks have to be rescued, public spending has to rise," said Ian Shepherdson, economist at High Frequency Economics. "The U.S. is making progress on all fronts, though the economy is still condemned to immediate recession followed by a long period of slow growth."

In the short run, the Fed's action is expected to have only limited impact on borrowing costs, given that credit markets are constricted for even the worthiest of borrowers, no matter what the price.

Credit card rates are already hitting floors that are set in agreements with customers, and issuers are being cautious about who gets the benefit of the lower rates. Rates on home-equity lines of credit will fall, but many homeowners have seen their credit lines frozen or reduced, so there won't be a big boost to consumer spending, Bankrate.com senior analyst Greg McBride says.

The move will likely not have an impact on fixed-rate mortgage rates and may not help those with adjustable-rate mortgages, depending how their rates are set, McBride says. "Savers will be thrown further under the bus as their interest income declines," he says.READ THE FULLSTORY