Federal funds rate cut by 25 basis points

The Federal Open Market Committee decided on 11th December 2007 to lower its target for the federal funds rate 25 basis points to 4.25 percent. The central bank also cut its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point to 4.75 percent

According to Federal Reserve Statement, incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Federal Reserve feels that this reduction action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Federal Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

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