Federal Reserve to the Rescue

UPDATED: Feb 25, 2020

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The Federal Reserve Board cut two key interest rates today during an unscheduled meeting. The Fed lowered its target for the federal funds rate by 75 basis points to 3.50 percent. The federal funds rate is the rate consumers pay on credit cards, home equity lines of credit and automobile loans. The Fed also reduced its target for the discount rate by 75 basis points to 4.00 percent. This is the rate banks pay to borrow money from the central bank.

The cuts were the largest made by the Fed since October 1984. The accompanying Fed statement cited growing concerns about the weakening economy and the recent volatility in the financial markets.

“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 statement said.

Many experts believe the Fed will decrease rates even further at its next scheduled meeting on January 30.

The federal funds rate is an overnight bank lending rate that affects rates on various types of loans such as variable-rate mortgages and credit card rates, among others. The rate may also impact rates on various investment and insurance products offered by life insurance companies.

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