The Federal Reserve rolled out its most powerful interest rate weapon on Tuesday in a bid to stop the turmoil in housing and financial markets from bringing down the overall economy.But even as stock markets soared in a thunderous rally, the Fed carefully stopped short of implying any commitment to reduce rates even more in the months ahead. Indeed, policy makers cautioned that they still have lingering worries about inflation -- a concern that would weigh against stimulating the economy further with cheaper money.
In reducing its benchmark interest rate by an unusually large one-half percentage point, to 4.75 percent from 5.25 percent, the central bank made it clear that policy makers viewed the turbulence and disruptions of the past couple of months as too dangerous to ignore.
The reaction in stock markets was ecstatic: the Dow Jones industrial average jumped 200 points almost instantly and ended the day up 335 points, or 2.51 percent, at 13,739.39.
Here's the Fed's statement:
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committee's last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Expect more rate cuts before the end of the year.
