WASHINGTON, Jan. 22 (KUNA) — Responding quickly to signs of a global financial crisis, the U.S. Federal Reserve on Tuesday slashed two key interest rates by three-quarters of a percentage point — its biggest such cut in nearly 24 years.
The day after stock markets plummeted among the major economies of the world as fears spread that massive losses on loans made to U.S. home buyers would ripple through the global financial system, the Federal Reserve took action.
The Fed lowered its federal funds rate, which affects how much consumers pay on credit card debt, home equity lines of credit and auto loans, to 3.5 percent from 4.25 percent. The Fed also lowered its discount rate, which is what it costs banks to borrow directly from the central bank, by three-quarters of a point, to 4 percent.
This was the biggest rate cut by the Fed since 1984, and the first cut between regularly scheduled meetings since a half-point cut on the day the market reopened following the September 2001 terrorist attacks in the United States.
“Broader financial market conditions have continued to deteriorate, and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets,” the Fed said in a statement.
U.S. stocks plunged at the start of trading Tuesday, with investors ignoring the Fed emergency rate cut amid fears of a looming U.S. recession.
The Dow Jones industrial average lost more than 400 points. The Nasdaq composite index fell 5 percent. The Standard Poor’s 500 index lost 3.5 percent.
President George W. Bush and lawmakers from both U.S. political parties were scheduled to meet later in the day to discuss a package to boost the faltering U.S. economy. On Friday, Bush unveiled a stimulus plan worth up to 150 billion dollars.
U.S. Treasury Secretary Henry Paulson said Tuesday that Congress and the White House should take quick action on a package of tax cuts and other measures to boost the economy