Federal Reserve Cuts Key Rate by 1/2 Point

The Federal Reserve Board cut its target for the federal funds rate by 50 basis points to 4.75% at its meeting today, September 18, 2007. It was the first rate reduction by the Fed in over four years (June 2003). The Fed's closely watched statement indicated the central bank is more concerned about the mortgage troubles plaguing both residental homeowners and Wall Street and the potentially negative impact on the economy. The statement also left open the possibility of further rate cuts if deemed necessary by the Fed. Investors responded by pushing up the Dow Jones Industrial Average by more than 330 points (2.5%). The federal funds rate is an overnight bank lending rate that affects rates on various types of loans such as variable-rate mortgages and credit card rates,