Fed cuts key interest rate to near zero

Financial Crisis Posted on

The Federal Reserve has slashed its target interest rate to nearly zero and is taking a number of other unprecedented moves in an effort to battle a severe financial crisis and worsening recession. Consumers trying to buy a house or finance a car loan could be the big winners, but analysts caution that any upturn in the economy is still months away.

The Fed on Tuesday announced that it was reducing its target for the federal funds rate to between zero and 0.25 percent, down from 1 percent, a level that was already the lowest target rate in a half century.

And the central bank pledged to use "all available tools" to fight the current downturn. It said it was likely that rates would be kept at "exceptionally low levels" for some time to come.

"The Fed has taken some very historic steps and for the first time since this crisis began, they have gotten ahead of expectations instead of trailing behind them," said Mark Zandi, chief economist at Moody's Economy.com.

The Fed's announcement sparked a big rally Tuesday on Wall Street, with the Dow Jones industrial average jumping 360 points, or 4 percent, as investors were pleasantly surprised by the Fed's resolve to aggressively attack the country's economic woes.

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