Industry News

Minutes reveal rationale for October rate cuts

Fed saw continued risk to funding markets

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The Federal Reserve's decision to slash short-term interest rates at the end of October was driven by a belief that inflation will edge down in coming years, and that unexpected economic weakness could cause a further tightening of credit markets. Minutes of the Oct. 30-31 meeting of the Fed's Open Market Committee also show the decision to slash the federal funds rate and discount rate by 25 basis points was a close one. In the end, concerns about disruption in financial markets that's restricted lending outweighed worries that reducing short-term interest rates would devalue the dollar and increase the risk of inflation. The move left the target rate for the federal funds rate at 4.5 percent and the discount rate at 5 percent. The federal funds rate is the rate banks charge each other for overnight loans, while the discount rate is the rate the Fed charges for direct loans to banks. Last week, Federal Reserve Gov. Randall Kroszner said those numbers could reflect a neut...