Fed Cuts Key Rate a Quarter Point to 4.25 Percent

Federal funds and prime rates are now at their lowest levels in nearly two years.
By: Jeannine Aversa: REALTOR® Magazine Online
The Federal Reserve dropped the federal funds rate by one-quarter point Tuesday to 4.25 percent. The rate reduction is the third this year.

The Fed also lowered its lending rates to banks by one-quarter-percentage point to 4.75 percent. That was the fourth cut to the discount rate since mid-August.

Both the funds rate and the prime rate are now at their lowest levels in nearly two years. The Fed hopes the cuts will stimulate economic growth, but Wall Street investors had hoped for more and the market responded by falling 300 points on Tuesday.

"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," the Fed said in a statement explaining its decision to cut rates again.