The Federal Reserve announced this morning that it was cutting the federal funds rate by 50 basis points to 1.5%. This move was coordinated with other central banks worldwide in an attempt to shore up global financial systems.
The banks involved in the coordinated interest rate cut were the European Central Bank, the Bank of England, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the Bank of Canada. Although Japan was not involved in the interest rate cut, the Bank of Japan expressed their support for this move.
Here is the Fed statement in full:
Release Date: October 8, 2008
For release at 7:00 a.m. EDT
Joint Statement by Central Banks
Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.
Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.Â
Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.
Federal Reserve Actions
The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures.ÂIncoming economic data suggest that the pace of economic activity has slowed markedly in recent months. 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. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.Â
The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.Â
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.Â
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-3/4 percent. In taking this action, the Board approved the request submitted by the Board of Directors of the Federal Reserve Bank of Boston.
Information on Actions Taken by Other Central Banks
Information on the actions that will be taken by other central banks is available at the following websites:Bank of Canada  Â
Bank of England Â
European Central Bank
Sveriges Riksbank (Bank of Sweden)
Swiss National Bank (51 KB PDF)ÂStatements by Other Central Banks
Bank of Japan (65 KB PDF)Â
 If you have a sizable cushion to depend on in these hard times, as I hope you have built up over the years, then this means you are going to earn less money in interest from your bank.
We all pray that this rate cut and the many other dramatic actions taken by the Fed, the Treasury and Congress will keep this recession from turning into a depression.
We are still within range of an average recession and bear market, as the stock market is down 38% year over year. The cumulative average bear market loses 34% in value. As with all averages, sometimes the market loses less and sometimes it loses more. Let’s hope we are at the bottom and will be moving up from here.
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