WASHINGTON -- The Federal Reserve dropped interest rates to their lowest point in four years as it cut the benchmark interest rate by 25 basis points to 2.0% as expected by economists.
The Federal Open Market Committee voted 8-2 and signaled that it will monitor how the economy reacts to earlier rate reductions and to the tax rebate checks recently sent out.The Fed said that inflation was moderate but still a concern.
The prime lending rate also dropped a quarter-point to 5.0%. That rate it linked to the rate on some credit cards and home equity lines of credit, so may offer relief to debt-burdened Americans.
Brian Turner, director of advisory services for Southwest Corporate Investment Services in Plano, Texas, said that for credit unions "This will lead to an increased cost of liquidity during a period of time when loan originations are sluggish. With an overnight investment rate of 2.0% and alternative two- and three-year investment alternatives approaching 4.0 to 4.2%, that cost approaches 210 basis points, or $21,000 per $1 million invested. Obviously for those with stronger loan demand, that associated cost is greater."