FED CUTS RATES WITH WARNING; DECEMBER REDUCTION UNLIKELY.Byline: Dave Skidmore Associated Press Associated Press: see news agency. Associated Press (AP) Cooperative news agency, the oldest and largest in the U.S. and long the largest in the world. The Federal Reserve moved to protect the economy Tuesday by cutting interest rates for the third time in seven weeks but signaled to Wall Street not to expect any more reductions soon. After meeting privately, Federal Reserve Chairman Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. and his colleagues announced they had cut two benchmark interest rates Benchmark interest rate Also called base interest rate, it is the minimum interest rate investors will demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on the comparable-maturity treasury security that was most recently issued (on-the-run). , each by a quarter percentage point. The rate charged among banks on overnight loans fell to 4.75 percent and the rate on the Fed's own loans fell to 4.5 percent. Major banks responded by cutting their prime lending rates The lowest rate of interest that a financial institution, such as a bank, charges its best customers, usually large corporations, for short-term unsecured loans. The prime lending rate is an economic indicator and is often used as a measuring point for adjusting interest to 7.75 percent. That will translate into cheaper monthly payments on a variety of consumer and business loans, including credit-card balances and auto loans. Wall Street reacted favorably at first, but then read the fine print. The Dow Jones industrial average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. shot up 75 points from Monday's close but then finished down 25 points at 8,986. In a written statement, the Federal Reserve board said that, after the latest cut, ``financial conditions can reasonably be expected to be consistent with fostering sustained economic expansion while keeping inflationary pressures subdued.'' Economists say that virtually rules out another rate cut at the Fed's next scheduled meeting, on Dec. 22, unless there's unforeseen deterioration in the economy or financial markets. The next chance would come after policy-makers meet in early February. ``I would think the Federal Reserve would be more prudent now and wait and see how the economy develops in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and other countries,'' economist Norman Robertson Norman Alexander Robertson, CC (March 4, 1904 - July 16, 1968) was a Canadian diplomat and was one of Prime Minister Mackenzie King's advisers. Born in Vancouver, British Columbia, he was educated at the University of British Columbia and was a Rhodes Scholar. of Smithfield Trust Co. in Pittsburgh said Tuesday. ``But I think the Fed exercised good judgment today, providing some degree of insurance against a more severe economic decline in the coming year.'' The cut brought the federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. to its lowest level in four years. It was the third cut since Sept. 29, when the Fed cut rates for the first time in three years. THE FACTS For consumers, the Federal Reserve Board's rate cut Tuesday is good news and bad, with a bit of uncertainty thrown in. The good news: Stock portfolios. The comeback in the stock market has been dramatic since the Fed began cutting rates this fall. Borrowers. Some people will see drops in their loan payments if they have home equity loans or credit cards that are tied to the prime rate. The bad news: Depositers. Banks pay less for money on deposit. For example, a one-year CD pays 4.27 percent now, down from 4.62 percent in late September. The uncertain: Homeowners. Rates on mortgage and new home equity loans are no longer tracking Fed rate reductions. - Daily News Staff and Wire Services |
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