Fed, As Expected, Cuts U.S. Interest Rates Half a Point

In a widely anticipated move, the Federal Reserve on Wednesday said it would create new money at a fast-enough clip to make overnight U.S. lending rates fall by half a percentage point more, in an effort to boost the flagging economy.

On top of an earlier half-point cut on Jan. 3, the Fed has now cut rates a full percentage point in less than a month – a very rapid change in the stance of U.S. monetary policy for a Fed that likes to normally move rates by only a quarter-point at a time.

Banks were expected to follow suit with cuts in their prime lending rates, and the move should soon bring down long-term mortgage rates as well. Such monetary stimulus can take many months to show up in new economic growth, but companies carrying large debt on such things as truck fleets could see an instant cut in their operating costs.

Any such help would be welcome as the trucking industry watches freight shipments flatten and in some cases shrink. The factory sector is already in recession, and a growing number of retailers are laying off workers and shutting down facilities.

Since the economies of Canada to the north and Mexico to the south are so closely tied to that of the larger U.S. economy, rates there might move in tandem with the Fed action. Several nations in Latin America have their currencies pegged to the U.S. dollar or have adopted the U.S. currency as their own, so the Fed action would immediately ripple through the hemisphere.

The Fed in its statement announcing the rate cut left the door open for more cuts in coming months, by saying the future risks are still weighted toward economic slowdown. And last week Fed Chairman Alan Greenspan had told Congress that economic growth is now about zero.

Earlier Wednesday, the Commerce Department’s initial reading of gross domestic product for the fourth quarter pegged growth at an annual rate of just 1.4% for October through December, for the weakest quarterly growth pace since spring of 1995.

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