US Central Bank Throws Markets a Curve Ball And Drops Interest Rates By Only .25%

The Federal Reserve, the US central bank, has cut short-term interest rates by 0.25%, but the move did not impress investors on the Wall Street with the New York Stock Exchange falling after anticipating a larger cut. The Dow Jones Industrials closed nearly 300 points lower

The Federal Open Market Committee issued the following statement explaining its decision.

Information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

There was only one discenting voice in the vote who preferred to lower the target for the federal funds rate by 50 basis points.

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