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Fed Cuts Rate a Quarter Point, Banks Respond

The Federal Reserve cut the federal funds rate by one-quarter percentage point to 4.5 percent Wednesday.

In response, commercial banks, including Bank of America, Wells Fargo, and KeyCorp., announced that they were cutting their prime lending rate — for certain credit cards, home equity lines of credit, and other loans — by a corresponding amount, to 7.5 percent.

The decline in these rates generally also pushes down first mortgage and refinance rates.

The Fed policymakers supporting Wednesday's rate cut said the action was needed to "forestall some of the adverse effects on the broader economy" that might arise from the housing and credit troubles that have wreaked havoc on Wall Street over the past few months.

But Fed policymakers said the current and the previous rate cut in September should be enough to “roughly balance” the risk to the economy from inflation.

Most economists are taking that statement to mean that the Fed probably will leave the funds rate alone when it next meets on Dec. 11, the last session of the year.

Source: The Associated Press, Jeannine Aversa (11/31/07)