In the wake of the Bear Stearns collapse – US Federal Reserve cuts interest rates again

Dandelion Salad

By Alex Lantier
19 March 2008

In a further move aimed at easing the credit crisis and propping up US banks, the Federal Reserve Board on Tuesday cut the federal funds rate, the key short-term interest rate, from 3 percent to 2.25 percent.

This is the Federal Reserve’s sixth rate cut since September of last year, slashing a full 3 percent from the target rate for short-term inter-bank loans. The Fed also cut the discount rate, the rate it charges banks for direct loans, from 3.25 percent to 2.5 percent.

Interest rate futures markets and many financial commentators had indicated they were expecting cuts of 1 percent in both the federal funds and discount rates. However, after a brief 150-point plunge following the Fed’s announcement, the stock market rallied sharply, with the Dow Jones Industrial Average closing at 12,391.52, up 419.27 points, or 3.5 per cent, for the day.


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