Fed Cuts U.S. Interest Rates
March 20, 2001
The Fed has spoken.
Tuesday, the Federal Reserve cut short-term interest rates for the third time this year.
The Fed's policy panel, the Federal Open Market Committee, headed by Chairman Alan Greenspan, cut the key market rate for overnight "federal funds" loaned between banks by a half a percentage point to 5 percent.
This rate influences a range of consumer and business loan rates. At the beginning
of 2000, that rate was 6.5 percent. The Fed cut its own "discount rate" for funds it lends to stressed commercial banks, by half a point to 4.5 percent.
The cut in the benchmark rate was less than the three-quarters point that financial
analysts had hoped would come in order to stimulate an economy called "stuttering" by President George W. Bush.
Even if it is not enough to stimulate economic growth and spur shipment activity, it does lower borrowing costs for businesses and consumers. The rate cut will result in lower monthly interest expenses for motor carriers that carry large floating-rate debt on their equipment.
In a statement announcing its rate moves, the Fed noted that consumption has declined and inventories were piled up but said stockpiles are falling. It acknowledged that economic downside risks still exist, as factories are operating well below their capacity.
The Fed's half-point decrease in the funds rate was expected to be quickly followed by announcements from commercial banks reducing their prime lending rate by a similar half-point, to 8 percent from 8.5 percent. The prime rate is the key benchmark for millions of loans, from home equity and unpaid credit cards balances to short-term loans for small businesses.
The Fed has hinted at future rate cuts, and a USA Today
report speculates that the Fed will cut rates another quarter percent before it meets again on May 15.