August 21, 2001 2:50 PM, EDT

Fed Cuts Interest Rates By Quarter-Percentage Point

The Federal Reserve cut U.S. interest rates by a quarter-percentage point on Tuesday, the seventh time this year rates have been slashed.

Once again, the Fed said excessive weakness, rather than inflation, is the main threat to the U.S. economy. It signaled it is ready to continue cutting rates should the economy deteriorate further. (Click here for the Fed's full statement.)

Financial analysts who follow the trucking industry note that any rate cut can immediately reduce monthly interest expenses for some trucking operations, if they carry large floating-rate debt on their equipment.

Also, if the cuts lead to more spending by businesses and consumers, it will force manufacturers to increase production. That, in turn, pushes up the demand for the services of trucking companies.

The move by the Fed leaves the federal funds rate, a benchmark for short-term rates throughout the economy, at 3.50%, the lowest in seven years. During the past 10 years, the rate has gone as low as 3%, from September 1992 until February 1994.

This was the second consecutive cut of a quarter-percentage point -- the five previous cuts were a one-half point each.

The central bank also chopped the discount rate -- charged on direct Fed loans to commercial banks -- by a quarter-percentage point, to 3%.

The next FOMC meeting is scheduled for Oct. 2. Transport Topics

Statement By the Federal Reserve on Interest Rates

The Federal Open Market Committee at its meeting today decided to lower its target for the federal funds rate by 25 basis points to 3-1/2 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 3 percent. Today's action by the FOMC brings the decline in the target federal funds rate since the beginning of the year to 300 basis points.

Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy. The associated easing of pressures on labor and product markets is expected to keep inflation contained.

Although long-term prospects for productivity growth and the economy remain favorable, the Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.

In taking the discount rate action, the Federal Reserve Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Richmond, Chicago, Kansas City and Dallas.

7724