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Short-term rates nearing historic lows

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For the second time this month, the Federal Reserve has cut a key short-term interest rate, but the widely anticipated move was expected to have little immediate impact on mortgage rates. In slashing its target for the federal funds overnight rate by 50 basis points, to 1 percent, the Federal Open Market Committee said a decline in consumer expenditures has "markedly" slowed economic activity. Weaker prospects for economic growth, and declines in energy prices and other commodities, have the Fed expecting that inflation will moderate in coming quarters, providing leeway to cut short-term rates to near historic lows. The Fed today also unanimously approved a 50-basis-point cut in the discount rate to 1.25 percent. The Fed also made emergency 50-basis-point cuts in the federal funds and discount rates on Oct. 8 (see story). The federal funds rate -- the rate banks charge each other for overnight loans -- was gradually reduced to 1 percent after the dot-com stock mar...