WASHINGTON — In a move which some have criticized as not deep enough, the Federal Open Market Committee of the Federal Reserve cut its target for the federal funds rate 25 basis points to 4.25%.
"Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending," the Fed said in its rate-cut announcement. "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."
In a related action, the Board of Governors unanimously approved a 25 basis-point decrease in the discount rate to 4.75%.
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"I welcome today's action by the Federal Reserve Board to cut interest rates, which will help provide needed liquidity to financial markets," said Representative Barney Frank (D-Mass.), chairman of the House Committee on Financial Services.
"This is an acknowledgement that our economy is deeply troubled and the preponderance of risks are on the downside. But, cutting rates and providing liquidity will not be enough to blunt the problems currently facing crucial mortgage markets and which threaten the broader economy." Frank contended the rate cut would not be enough and urged the Bush Administration to work with Congress to mitigate the ongoing economic crisis, particularly in mortgage markets.
"I also welcome recent indications that the Bush Administration now realizes that these circumstances require a public policy response. We are ready to work with them. In particular, I hope we will be able to revise the plan to address subprime mortgages that the Treasury Department announced last week (see story, page 20). We must ensure that more people are eligible and that it is aggressively promoted. If this does not happen hundreds of thousands of families will lose their homes and the inventory of vacant properties will continue to grow."
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