Fed Cuts Rates Quarter-Point - 500 Beiträge pro Seite

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WASHINGTON (Reuters) - The Federal Reserve on Tuesday cut U.S. interest rates by a quarter of a percentage point, its seventh rate reduction this year, and signaled it was poised to do more to bolster a flagging economy.

The Fed action brought the federal funds rate, a benchmark for short-term lending rates throughout the economy, to 3.5 percent, its lowest level since spring 1994. The central bank also chopped the discount rate -- charged on direct Fed loans to commercial banks -- by a quarter point to 3 percent.

Since the start of 2001, the Fed has slashed rates by 3 full percentage points in one of its most aggressive easing campaigns in recent history, trying to reignite guttering growth in an economy teetering on the brink of contraction.

In a statement issued after a meeting of the

policy-setting Federal Open Market Committee, the Fed said it still sees excessive weakness, rather than inflation, as the main threat to the U.S. economy, indicating it stands ready to cut rates again should the economy deteriorate further.

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Tuesday August 21, 2:22 pm Eastern Time

Fed Cuts Rates Quarter-Point

By Glenn Somerville

WASHINGTON (Reuters) - The Federal Reserve on Tuesday cut U.S. interest rates by a quarter of a percentage point, its seventh rate reduction this year, and signaled it was poised to do more to bolster a flagging economy.


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The Fed action, widely expected by financial markets, brought the federal funds rate, a benchmark for short-term lending rates throughout the economy, to 3.5 percent, its lowest level since spring 1994. The central bank also chopped the discount rate -- charged on direct Fed loans to commercial banks -- by a quarter point to 3 percent.

Stocks dipped after the announcement while bonds edged slightly higher.

``Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy,`` said the Fed in a statement following a meeting of the policy-setting Federal Open Market Committee that also said it expected inflation pressures to remain in check.

Since the start of 2001, the Fed has slashed rates by 3 full percentage points in one of its most aggressive easing campaigns in recent history, trying to reignite guttering growth in an economy teetering on the brink of contraction.

In the post-meeting statement, the Fed said it still sees excessive weakness, rather than inflation, as the main threat to the U.S. economy, indicating it stands ready to cut rates again should the economy deteriorate further.

The world`s largest economy has been slowing over the course of the past year.

Gross domestic product advanced at an anemic 0.7 percent annual rate in the April-June quarter of 2001 after growing at a 1.3 percent pace in the first three months of the year.

Some analysts believe revised second-quarter GDP figures, due to be issued next week, will show the economy slowed to a standstill or even contracted during the second quarter for the first time in more than a decade.

But there are glimmers of hope that a recession, generally defined as six months of shrinking national output, can be avoided and that the worst of the slowdown is nearly over.

Recent government reports show consumer spending

has held up, the housing sector has benefited from falling mortgage rates and businesses continue to make progress in shrinking bloated inventories of unsold goods.

That could mean the Fed`s rate-cutting cycle is nearing an end although a growing number of dealers still expect another reduction this year. In a recent poll of primary dealers by Reuters, 12 expected at least one more quarter-point reduction in October or by year-end. In the prior poll on Aug. 3, nine predicted an October cut while 16 saw no more moves.

The next FOMC meeting is scheduled for Oct. 2.

A recovery to more vigorous and sustained economic growth may be dragged out, however, as companies continue to lay off employees and to curb their investment spending.

The president of the Atlanta regional Fed bank, Jack Guynn, recently told Reuters that it was likely to be late this year or early in 2002 before the conditions for a return to a stronger growth were in place.

``The process, the adjustment process, is just taking longer than I, and I think many other people, thought that it would,`` said Guynn, who is not currently a voting member of the U.S. central bank`s policymaking panel.