Capital Markets

Fed Cuts Funds Rate by 75 Basis Points

The committee points to slowed growth in consumer spending, softened labor markets, stressed financial markets, tightened credit, and contraction i...
David KatzMarch 18, 2008

Citing burdens that will probably curb economic growth in the near term, the Federal Reserve’s Open Market Committee decided on Tuesday to lower its target federal funds rate by 75 basis points to 2.25 percent.

In a press release, the Fed stated:

“Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

“Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

“Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.”

Voting for action were: Ben S. Bernanke, chairman; Timothy F. Geithner, vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against the cut were Richard W. Fisher and Charles I. Plosser, who “preferred less aggressive action at this meeting,” according to the release.