WASHINGTON - The Federal Reserve has slashed a key interest rate by half a percentage point as it seeks to revive an economy hit by a long list of maladies stemming from the most severe financial crisis in decades.
The central bank on Wednesday reduced its target for the federal funds rate, the interest banks charge on overnight loans, to one per cent, a low last seen in 2003-2004. The funds rate has not been lower since 1958, when Dwight Eisenhower was president.
The cut marked the second half-point reduction in the funds rate this month. The Fed slashed the rate by that amount on Oct. 8 in a co-ordinated move with other central banks, including the Bank of Canada.
In a statement explaining Wednesday's action, the Fed said the "intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and business to obtain credit."
The central bank said it has room to lower rates because the spreading economic weakness is lowering the risk that inflation would get out of control. Indeed, the weakness has caused dramatic declines in the cost of oil and other commodities.
While many economists believe America has already fallen into a recession, they think the aggressive efforts by the Fed to cut rates and take other actions to unfreeze credit markets could avert a prolonged and deep downturn.
The Fed's action was expected to be quickly followed by a similar reduction by commercial banks in their prime lending rate, the benchmark for millions of consumer and business loans.
