Fed Lowers Key Interest Rate to 4.75%

The Federal Reserve Tuesday voted to lower the benchmark U.S. interest rate by half a percentage point to 4.75%, the first reduction in four years.

The move followed nine straight meetings at which the Federal Open Market Committee held the rate at 5.25%.

The vote to lower the federal funds rate was unanimous.

The Fed last held the rate steady at its Aug. 7 meeting and has not raised the benchmark rate that banks charge each other since June 2006, when it raised the rate by a quarter-point for the 17th straight time.

Following is the full statement from the Fed:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4.75%.

Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. 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 to promote moderate growth over time. 

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. 

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook.  The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.  

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5.25%. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.