WASHINGTON – The Federal Reserve modestly cut a key interest rate today for a sixth time this year, but the reduction was only a quarter-point, instead of the half-point moves taken since January.
In a brief statement, the Fed provided no explanation why it switched to a smaller cut, other than citing that “continuing favorable trends bolster long-term prospects for productivity growth and the economy.”
The Federal Reserve Board decided to lower its target for the federal funds rate by 25 basis points to 3-3/4 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 3-1/4 percent. Today’s action by the FOMC brings the decline in the target federal funds rate since the beginning of the year to 275 basis points.
The patterns evident in recent months–declining profitability and business capital spending, weak expansion of consumption, and slowing growth abroad–continue to weigh on the economy. The associated easing of pressures on labor and product markets are expected to keep inflation contained.
Although continuing favorable trends bolster long-term prospects for productivity growth and the economy, the Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.
Most economists believe the Fed’s aggressive action and tax relief will allow the country to skirt a recession this year.
