Fed Cuts Interest Rates By Quarter-Point

The Federal Reserve on Tuesday cut the overnight bank lending rate a quarter percentage point to 1.75%, the lowest since July 1961, saying economic activity remains soft.

In its announcement, the central bank said that weakness in demand is “showing signs of abating, but those signs are preliminary and tentative.”

The largely symbolic discount rate was also eased, to 1.25% from 1.5%.

If a rate cut leads 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.

Also, 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.

The Fed declined to say that it would not cut rates again – leaving the door open for another rate cut when it meets in January, CNBC said.

This was the 11th rate cut this year, pushing the federal funds rate down by a total of 4.75 percentage points. Since the Fed will not meet again in 2001, this cut will likely be the final one of the year.

The quarter percentage point cut was in line with what analysts had expected, Bloomberg reported.

By Transport Topics

---

Statement by the Federal Reserve

The Federal Open Market Committee decided today to lower its target for the federal funds rate by 25 basis points to 1-3/4 percent. In a related action, the Board of Governors approved a 25 basis point reduction in the discount rate to 1-1/4 percent.

Economic activity remains soft, with underlying inflation likely to edge lower from relatively modest levels. To be sure, weakness in demand shows signs of abating, but those signs are preliminary and tentative. 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.

Although the necessary reallocation of resources to enhance security may restrain advances in productivity for a time, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.

In taking the discount rate action, the Federal Reserve Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Chicago and San Francisco

8259