US Federal Reserve cuts discount lending rate

The Federal Reserve, US on 17th August 2007 , reacting to concerns about the subprime lending crisis cut its discount rate half a percentage point, to 5.75 percent.

The discount rate is the rate the Federal Reserve charges qualified lenders, mainly banks, for temporary loans. The discount rate cut could lower the cost of capital for banks and help keep credit flowing through the economy at a time when investors have shown a greater reluctance to lend.

The central bank did not change its federal funds rate, which affects credit cards, home equity lines of credit, car loans and other consumer loan rates. That rate remains at 5.25 percent.

The Fed last met on August 7 and decided to leave both the federal funds and discount rates unchanged. But since then, stocks have plunged further due to fears that some financial institutions and hedge funds were in serious trouble because of the mortgage meltdown.

In a statement, the Fed said it took the move to "promote the restoration of orderly conditions in financial markets."

In another statement, the central bank indicated that "financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward."

The Fed added that "although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably"

Federal Open Market Committee said it was monitoring conditions and was "prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

Central bank's next scheduled meeting is September 18, 2007 and many expect that Fed would lower rates to restore investor confidence.

US Federal Reserve cuts discount lending rate

Subprime Crisis: A Special




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