The Federal Reserve today cut key interest rates by a quarter point, to 2%, and gave a somewhat optimistic prognosis on the economy's long-term prospects.
In a press release, the Fed cited near-term concerns such as weak economic activity, reduced spending by both households and businesses, and soft labor markets. It also noted that housing and credit problems will likely be a drag on the economy during the next few quarters.
And despite acknowledging that rising energy and commodity costs raise inflation concerns, the Fed didn't give any clues that it was done with its current bout of rate cuts that have lowered the benchmark federal funds rate by three percentage points since September. The federal funds rate is the rate that banks charge each other for overnight loans of reserve balances, and is the most sensitive indicator of the direction of interest rates.
But the Fed said it believes its efforts to ease monetary policy and encourage market liquidity should help mitigate economic risks and support long-term economic growth.
The Fed also lowered the discount rate by 25 basis points, to 2.25%. The discount rate is the rate the Federal Reserve charges banks for temporary loans.