Base Rate Cut by Fed

In January 2008, Fed introduced a base rate cut by half percentage point, in order to soften the problem of housing slump and to prevent the recession of US economy. After this half point cut, the Base Rate stood at the level of 3%.
Just a week before this Base Rate cut, US Economy experienced an emergency cut in Base Rate. That time 0.75 percentage points reduced the Base Rate. It was done following the emerging problems of the global market. The authority also feared that US Economy would move into a period of recession.

After the base rate cut by half point, an official of FOMC (Federal Open Market Committee), stated that, the Financial Markets of USA continued to remain stressed and the credit flow to households and businesses were narrowed down.

He also hinted about the labor market softening. It was also predicted that, the problem of housing market contraction were becoming graver. The decision of Base Rate cut, was taken through the process of voting.
Ben Bernanke, the Fed Chairman, headed the voting panel. Among the ten panel members, nine voted in favor of the move that is in the favor of the base rate cut. The only vote, against the rate cut, came from Richard Fisher, the Chief of Dallas Fed. Richard Fisher was in favor of no change in the prevailing Base Rate.

After taking the decision of Base Rate cut, Fed issued a statement. This statement claimed that, the policy decision of base rate cut by half percentage point, along with the previous rate cuts, would help the US economy to grow at a moderate level and would reduce the risk of recession. The statement also revealed that, the committee would assess the effect of this financial step of Base Rate cut and would also keep a close look on the effects of other financial developments. After assessing the economic prospects of these financial developments, the committee would take necessary steps in order to reduce the risks of economic activities.

There were expectations that, the base rate cut by Fed would lower the borrowing costs for the businesses and the individual consumers. The authority also thought that, the base rate cut would soften the problem of housing slump, which hugely affected the financial sectors of US economy.

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Last Updated on : 30th July 2013