Commercial Banks Respond to Fed Cut

The Federal Reserve lowered its key interest rate another one-half point to 3 percent Wednesday to keep the slow-growing economy and sagging stock market moving in the right direction.

Commercial banks followed the Fed action by lowering their prime-lending rate by the same half percentage point to 6 percent.

The Fed, which voted 9-1 to make the cut, released a statement that said among other things that “a deepening of the housing contraction as well as some softening in labor markets” triggered the move

More rate cuts are expected at the Fed’s next scheduled meeting in March and beyond. Some economists, who applauded the action, predict the key rate could drop as low as 2 percent this year, which would be the lowest in four years.

Bernanke is not expected to cut rates as deeply as did his predecessor, Alan Greenspan, who in the wake of the Sept. 11 attacks cut rates until they reached 1 percent, a 45-year low in the summer of 2003.

Source: The Associated Press, Jeannine Aversa (01/30/08)