At 1.5%, rates are historically low.
And the problem isn’t the cost of credit, its the availability of credit.
From a macro perspective, there is no reason to cut more than 25bps…leave a little dry powder for next month. (Good discussion yesterday at Real Time Economics)
Rate decision in 5 minutes.
UPDATE: October 29, 2008 2:18pm
50 BPS CUT, RISK REMAINS TO GROWTH
Federal Reserve cuts interest rates to 1% — the lowest levels since 2003.
The Federal Open Market Committee decided today to lower its target for the
federal funds rate 50 basis points to 1 percent.
The pace of economic activity appears to have slowed markedly, owing
importantly to a decline in consumer expenditures. Business equipment spending
and industrial production have weakened in recent months, and slowing economic
activity in many foreign economies is damping the prospects for U.S. exports.
Moreover, the intensification of financial market turmoil is likely to exert
additional restraint on spending, partly by further reducing the ability of
households and businesses to obtain credit.
In light of the declines in the prices of energy and other commodities and
the weaker prospects for economic activity, the Committee expects inflation to
moderate in coming quarters to levels consistent with price stability.
Recent policy actions, including today’s rate reduction, coordinated interest
rate cuts by central banks, extraordinary liquidity measures, and official steps
to strengthen financial systems, should help over time to improve credit
conditions and promote a return to moderate economic growth. Nevertheless,
downside risks to growth remain. The Committee will monitor economic and
financial developments carefully and will act as needed to promote sustainable
economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald
L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H.
Stern; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a
50-basis-point decrease in the discount rate to 1-1/4 percent. 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, and San Francisco.