Fed Cuts Key Interest Rate by 3/4 of a Point

Fed cuts key interest rate by 3/4 of a point: In a surprising move, The Fed cut interest rates this morning by 3/4 of a percentage point, which is the largest cut since October 1984. This move brings the federal funds rate to 3.5 percent. The move specifically targets how much a consumer will pay in interest on auto loans, home equity loans and credit card rates. Many banks have already lowered prime lending rates by 3/4 of a percentage point to match actions by The Fed.

In an attempt to help banks, The Fed lowered the discount rate by 3/4 of a percentage point. The discount rate is what the banks pay to borrow money from the central bank. This morning's move means that it will be cheaper for banks to borrow money from the government, which in turn could mean more lending for consumers.

CNN Money reports this morning's rate cut was not expected until the regular meeting scheduled for January 30. Other Wall Street analysts believe The Fed will adjust interest rates again next week in an attempt to avert an economic recession. Some analysts hint that bigger problems are looming. Global markets took a beating in trading yesterday on fears that the American economy is heading for recession and the reaction in the U.S. was mixed as stocks plunged in early trading.

What exactly is recession and how does that affect American consumers? Textbook definitions of recession happen when the real gross domestic product declines for two consecutive quarters. A more realistic picture of impending recession is a decline in the aggregate economic activity. Determining a downswing in the business cycle comes down to tracking employment, industrial production as well as manufacturing/trade sales.