The Federal Reserve, still trying to keep the US economy out of a recession, cut a key interest rate Tuesday for the seventh time this year, lowering the federal funds rate by a quarter-point to 3.50 percent.
The reduction pushed the funds rate, the interest that banks charge on overnight loans, to its lowest level in more than seven years.
In response, Bank of America and Bank One cut their prime lending rate, the benchmark for consumer and business loans, to 6.5 percent, also the lowest level in seven years. Other banks were expected to follow suit.
PHOTO: AP
On Wall Street, stock prices dropped after the announcement, investors having anticipated the Fed's action. Within 20 minutes of the announcement, the Dow Jones industrial average had lost a 45-point gain and another 20 points. The NASDAQ index fell 7 points.
With the latest reduction, the Fed has cut rates by 3 percentage points since the beginning of this year, including five straight half-point rate reductions, which represented the Fed's fastest credit easing in nearly two decades.
The effort is aimed at jump-starting the US economy, which has been lackluster for a year and slipped close to recession territory in the spring.
In explaining its latest rate move, the Fed said in a statement: "Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the US economy."
The quarter-point move had been expected. Some analysts had said the central bank might opt for a larger half-point move in an effort to deliver a surprise to Wall Street investors, who had already factored in a quarter-point cut.
Signaling possible future moves, the Fed said the balance of risks going forward remains "weighted mainly toward conditions that may generate economic weakness in the foreseeable future."
Many analysts said the Fed was leaving the door open for another rate cut at its next meeting on Oct. 2, but they said that would likely be the last move in this easing cycle. They said this view explained why investors registered disappointment with the Fed's latest cut.
"There is a sense in the stock market that the Fed is getting near the end of its credit easing," said David Jones, chief economist at Aubrey Lanston & Co in New York.
The Bush administration is counting on lower interest rates plus the impact of nearly US$40 billion in tax rebate money this year to boost consumer demand and provide greater strength in the second half of the year.
Economists point to encouraging signs that an upturn may be imminent, including a report Monday that the Index of Leading Economic Indicators rose by 0.3 percent in July, the fourth consecutive monthly gain.
The economy barely grew in the spring, managing only a 0.7 percent rate of increase in the gross domestic product, the poorest performance in eight years. Even that rate is likely to be lowered when the government revises the figure later this month.
Top forecasters surveyed by Blue Chip Economic Indicators said they were looking for a slight rebound to growth rates of 1.7 percent in the July-September quarter and 2.8 percent in the final three months of this year.
In addition to the change in the federal funds rate, the Fed also lowered its largely symbolic discount rate by a quarter point.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft