The Federal Reserve cut short-term U.S. interest rates by half a percentage point, bringing the federal funds rate on overnight bank lending to 4.5 percent. The discount rate on Fed loans to banks will fall to 4.0 percent.
According to the Fed, the rate cut was needed because “capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward. This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, threatens to keep the pace of economic activity unacceptably weak.”
This marks the fourth time this year the Fed has cut the fed funds rate by 50 basis points. The first cut on Jan. 3 was unscheduled. The next two cuts, in late January and March, were done at regularly scheduled meetings of the Federal Open Market Committee. The FOMC meets again in May.