Fed cuts key US interest rate

Updated: 2008-01-22 22:11

Before Tuesday's move, the Fed had cut interest rates three times, beginning in September, the month after a severe credit crunch had roiled Wall Street and global financial markets. The Fed cut the funds rate by a half-point in September and then by smaller quarter-point moves in October and December.

In its statement, the Fed said, that "appreciable downside risks to growth remain" and held out the prospect of further rate cuts.

"The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risk," the Fed statement said.

The Fed's action was approved on an 8-1 vote with William Poole, president the Fed's regional bank, dissenting. The statement said that Poole objected because he did not believe current conditions justified a rate move before the Fed's meeting next week.

But both sides have negotiated in good faith. Republicans and Bush declined to insist on extending Bush's 2001 and 2003 tax cuts that expire in three years, while Democrats offered up tax breaks for business and limited their roster of spending proposals. Democrats also agreed to waive budget rules requiring tax increases to finance the measure.

The rush to produce an economic stimulus bill comes as recent data on the US economy is increasingly negative and as the issue has become a top priority with US voters.

The major players appear motivated chiefly by a desire to help people who are hurting as the economy sags. But the political benefits of looking responsive to demands by voters to do something about the economy are not lost on US lawmakers and the White House at a time when approval ratings for both are in the gutter.

"We'd all like to have a better record. I don't think any of us are particularly proud of the session of Congress just completed and we'd like to start things out on a better footing," said Rep. Earl Pomeroy, D-N.D. "But I really do think it's more like, 'We've got to do something about the economy.' This is a no-games deal."

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