Associated Press – Fed Reserve cuts interest rate

The Associated Press
Oct. 31, 2007 11:41 AM
 WASHINGTON – The Federal Reserve, confronted with surging oil prices and a slumping housing market, on Wednesday cut a key interest rate by a quarter-point, the second rate reduction this year.

The central bank lowered the federal funds rate to 4.5 percent in an effort to stimulate economic activity and keep the country from dipping into a recession. The move will make it cheaper for consumers and businesses to borrow money.

The Fed’s action came on the same day the government announced that the overall economy grew at a stronger-than-expected 3.9 percent rate in the July-September quarter.  However, economists are worried that growth will be less than half that amount in the current quarter as the country struggles with a deepening housing slump.

However, Fed policymakers signaled that Wednesday’s cut may be all that is needed to deal with the economy’s trouble.

The panel said in a brief statement explaining its action that the Fed after the second rate cut judges that “the upside risks to inflation roughly balance the downside risks to growth.”

By stating that risks are now roughly balanced, the Fed could be signaling that it judges that further rate cuts will not be necessary.

The Fed’s decision came on a 9-1 vote with Thomas Hoenig, president of the Kansas City regional Fed bank dissenting, arguing that he preferred no change in the funds rate.

Commenting on the economy, the Fed struck a more positive tone than it did last month when it expressed concerns about the toll the August credit crisis would take on housing and the overall economy.

In the current statement, the Fed said, “Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance.”