Scrambling to shore up the faltering economy, the US Federal Reserve cut interest rates to the lowest point in nearly four years as the US teetered on the edge of recession.
Wall Street rallied at first on Wednesday but then pulled back, concerned that the reduction might be the last for a while.
In fact, the Fed’s trim was smaller than those of recent months amid indications the central bank might pause to see if months of powerful rate-cutting medicine and billions of dollars in stimulus checks will be enough to lift the country out of its slump.
Fed Chairman Ben Bernanke led a split decision — in an 8-2 vote — to slice the key rate by a quarter percentage point to 2 percent.
In turn, the prime lending rate for millions of consumers and businesses fell by a corresponding amount, to 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans. Both rates are the lowest since late 2004.
The Fed, which has been dropping rates since September, turned much more forceful early this year when housing, credit and financial problems worsened. Rate reductions in January and March alone marked the most aggressive intervention in a quarter-century in an effort to re-energize consumers and businesses.
“The substantial easing of monetary policy to date ... should help to promote moderate growth over time and to mitigate risks to economic activity,” the Fed said, strongly hinting that more cuts may not be needed.
Enthusiastic Wall Street investors drove the Dow Jones industrial average up more than 178 points — lifting it above 13,000 for the first time since early January — right after the Fed action. Then traders turned cautious, and the index ended the day 11.81 points below where it started.
Although the Fed didn’t take another reduction off the table, a growing number of economists believe the central bank is winding down its rate-cutting campaign.
Barring another hit to economic growth, they believe rates probably will stay where they are — perhaps through the rest of this year — in part because the Fed is concerned that further cuts could join with galloping energy and food prices and spread inflation dangerously higher.
By all accounts, the country’s economic health is fragile.
The economy crawled ahead at a pace of just 0.6 percent from January through March as housing and credit problems forced consumers and businesses to hunker down, the US Commerce Department reported hours before the Fed’s action. Growth had been just as feeble in the prior quarter.
Job losses in the first quarter neared the staggering quarter-million mark, and a government report today is expected to show that employers shed jobs again last month. The unemployment rate last month is expected to creep higher from 5.1 percent in March and hit 6 percent early next year, analysts say.
“Recent information indicates that economic activity remains weak,” the Fed said. “Household and business spending has been subdued, and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.”
Two Fed members — Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas — opposed cutting rates on Wednesday.
Both men have a reputation for being especially vigilant about fighting inflation. At the Fed’s meeting in March, they opposed cutting rates by a whopping three-quarter points and preferred a smaller reduction.
“The Fed didn’t completely shut the door on rate cuts but they closed it part way,” said Mark Zandi, chief economist at Moody’s Economy.com.
“I think the overall message was they’ve done a lot already to help the economy and think this will be enough. But they stand ready to do more if that is needed,” he said.
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
REGIONAL STABILITY: Taipei thanked the Biden administration for authorizing its 16th sale of military goods and services to uphold Taiwan’s defense and safety The US Department of State has approved the sale of US$228 million of military goods and services to Taiwan, the US Department of Defense said on Monday. The state department “made a determination approving a possible Foreign Military Sale” to the Taipei Economic and Cultural Representative Office in the US for “return, repair and reshipment of spare parts and related equipment,” the defense department’s Defense Security Cooperation Agency said in a news release. Taiwan had requested the purchase of items and services which include the “return, repair and reshipment of classified and unclassified spare parts for aircraft and related equipment; US Government
More than 500 people on Saturday marched in New York in support of Taiwan’s entry to the UN, significantly more people than previous years. The march, coinciding with the ongoing 79th session of the UN General Assembly, comes close on the heels of growing international discourse regarding the meaning of UN Resolution 2758. Resolution 2758, adopted by the UN General Assembly in 1971, recognizes the People’s Republic of China (PRC) as the “only lawful representative of China.” It resulted in the Republic of China (ROC) losing its seat at the UN to the PRC. Taiwan has since been excluded from