The Federal Reserve is widely expected to ratchet down a key interest rate – perhaps to an all-time low – to prevent the sinking economy from falling further.
Federal Reserve Chairman Ben Bernanke and his colleagues open a two-day meeting today to take a fresh pulse on the ailing economy, which has been mired in a recession since last December, and to decide their next move on interest rates.
Fighting the worst financial crisis since the 1930s, the Fed has already pushed down its main lever for influencing the economy – the federal funds rate – to 1 percent, a level seen only once before in the last half-century.
Many economists predict the Fed will cut its rate in half – to just 0.50 percent when the session wraps up on Tuesday. A few think the Fed could opt for an even more forceful action – lowering rates by a whopping three-quarters percentage point or more.
If that larger cut occurs, it would be the lowest on records that track the monthly average of the targeted funds rate going back to 1954. The funds rate is the interest banks charge each other on overnight loans.
However deeply the Fed decides to cut rates, the prime rate – now at 4 percent – for many consumer and small-business loans would drop by a corresponding amount. The prime lending rate is used to peg rates on home equity loans, certain credit cards and other consumer loans. Cheaper rates could give pinched borrowers a dose of relief. (AP)
