Source: Bloomberg News
For the first rate cut since 2003 the Fed cut interest rates of the central bank to 4.75. The _ point cut was higher than expected. Although most speculated a cut of _ or _ point, the selection of the latter came as a surprise to many. Some criticized the cut as bailing out investors however most agree that an interest rate cut was necessary to help the declining housing and commercial markets.
The Federal Open Market Committee said in a statement: “Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets” and that the central bank will “act as needed to foster price stability and sustainable economic growth.”
The decline of the housing market has tightened the credit market and many feared that the economy was heading towards a recession. With the rate decrease comes the hope that tension will ease and people will spend more. Many see the move by the Fed as preemptive and very much aimed at avoiding a recession while attempting to increase economic markets. The credit crunch has largely been blamed at problems in the sub-prime mortgage market.
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