Industry News

Fed slashes overnight rates by 50 basis points

Markets welcome reduction in federal funds, discount rates

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Stocks soared but yields on 10-year Treasury note stayed stable after the Federal Reserve slashed 50 basis points off both the federal funds rate -- the rate banks charge each other for overnight loans -- and the discount rate, the rate the Fed charges for direct loans to banks. The reduction in the target for the federal funds rate, to 4.75 percent, marked the first time the Fed had cut the overnight rate since June 25, 2003. At the time, the Fed was capping a series of reductions intended to encourage borrowing and stave off a recession after the dot-com stock market bust and the Sept. 11, 2001, terrorist attacks. Before the Fed started cutting the federal funds rate on Jan. 3, 2001, it stood at 6.5 percent. A year and a half later, it stood at 1 percent. Some analysts said the drastic reductions in the federal funds rate helped fuel the housing boom by easing lending standards. The Fed then tried to put the brakes on growth by raising the federal funds rate 17 straight times betwe...