The U.S. Federal Open Market Committee lowered its interest rate for open market operations by 25 basis points to 4.25%, while the discount rate for central bank to banks type of lending lending was also cut by 0.25% to 4.75%.
This decision was much of a surprise to economists, because they expected a rate cut by 0.50% in both rates as the sure way to fight the menace of recession and to add some stability to the banking sector. The interest rate futures for December were showing a more than 50% probability for 4.00% rate.
Not only Fed lowered the interest rate by less than traders expected, but its statement also suggests that we won’t see another cut in the nearest future. By the FOMC’s words, recent measures combined with the current cut are enough to solve the main problems of U.S. economy:
Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Todayâs action, combined with the policy actions taken earlier, should help promote moderate growth over time.
Only one of the Committee members voted against the decision — Eric S. Rosengren, he suggested a 0.50% cut. This fact is not enough to give a firm hope for a possible another rate decrease during the next meeting on January 28/29, but it is a hint, that next meetings will see some more doubt in keeping the rates high.
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