Fed Cuts Federal Funds Rate By 75 Basis Points

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It’s the biggest rate cut ever in the nonstop “cut the rates and save the economy” show that’s been going on at the Federal Reserve. Fearing a global sell off of stocks, the Fed dug deep and came up with the largest interest rate decrease in recent memory.

Is Bernanke subliminally flipping the world “the bird”?

The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.

The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory.

The Fed decision was taken during an emergency telephone conference with Fed officials on Monday night. Those discussions occurred after global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world’s largest economy, could be headed into a recession.

The Fed has been cutting rates nearly continuously, despite increasing fears of inflation. The thought is that cutting the Fed Fund rate will encourage lower interest rates on credit cards. It might also encourage more people to save, promoting higher CD Rates. With the world’s largest economy on the skids, it would only take a slight push to send the world into a global slowdown. These latest measures are designed to stop such a skid. Only time will tell if the strategy is sound.

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