The Federal Reserve slashed US interest rates to their lowest in over 6 years today, sending stock prices skyward with a shock show of determination to keep alive the economy's record expansion.
For a second time this year, the US central bank delighted financial markets by aggressively cutting rates a half percentage point between regularly scheduled meetings of its policy-setting Federal Open Market Committee.
As stock markets celebrated, analysts praised the Fed's surprise show of resolve to keep alive the economic expansion which has continued since the last recession in 1990-91. The move showed the central bank's mounting concern that businesses were cutting spending so steeply that the economy was at risk of falling into recession.
In a statement explaining its relatively rare step, the Fed said economic conditions still were tilted toward weakness -- a clear signal that it will cut rates again if necessary. The Fed's next scheduled FOMC meeting is on May 15th and another rate reduction is widely anticipated then.
The latest Fed action, taken after an early morning conference call between Fed Chairman Alan Greenspan and other FOMC members, brings the federal funds overnight bank lending rate down to 4.5 percent -- its lowest level in more than 6 years. That was just before the Fed raised the fed funds rate to 4.75 percent in August 1994.
The more symbolic discount rate on Fed loans to banks will fall to 4.0 percent.
Stock markets, already in positive territory before the move, soared on the news that borrowing and investment costs would fall. The Dow Jones industrial average was ahead more than 400 points, or 4.3 percent, in early afternoon and the high-tech laden Nasdaq composite index was up more than 200 points, or 10 percent.