The Fed Cuts the Target Rate by Half a Percent

Here's the press release:

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

So the vote wasn't unanimous (9-1 as there are two open seats), Richard Fisher from the Dallas Fed dissented, and nine of the twelve district banks asked for a change in the discount rate consistent with the 50 bps rate cut. The other three banks, Dallas, Minneapolis, and Richmond, either did not agree with a 50 bps rate cut prior to the meeting, and/or they wanted to alter the spread between the discount rate and the federal funds rate.

While noting inflation concerns, the Committee also appears to be ready to cut rates further should incoming data suggest further cuts are necessary. Hopefully, though, we can now all catch our breaths for a little while and get a better assessment of exactly where we are.

Update: Fed cuts rates by 50 basis points (Financial Times), Fed Cuts Rates by Half Point (WSJ), Fed Lowers Rate Half Percentage Point to 3%, Says `Downside Risks' Remain (Bloomberg), Fed Cuts Rate for Second Time in 8 Days (NY Times).

Update: The Lone Dissenter: Dallas’s Fisher (WSJ Economics Blog),50 Bps and a Song... (Barry Ritholtz), Fed Cuts Fed Funds Rate 50bps (Calculated Risk), Another 50 basis points (William Polley), 50bp, Right on Schedule (Felix Salmon), Half Point Cut (Jeffrey Cane), Fed rate cut (Jim Hamilton)