WASHINGTON (AP) — The Federal Reserve moved to inoculate the U.S. economy against a spreading global crisis Tuesday, cutting a key interest rate for the first time in nearly three years.
The quarter-point cut in the federal funds rate to 5.25 percent will mean slightly lower borrowing costs for millions of Americans on everything from auto loans to home equity lines of credit.
Wall Street, which had hoped for a bigger rate cut, sent stock prices plunging by more than 100 points after the Fed announcement but later recovered somewhat. The Dow Jones industrial average ended the day down 28.32 at 8,080.52. The bond market did rally on the news with Treasury’s benchmark 30-year bond falling to a record low of 5.09 percent.
Congressional critics, however, complained that the Fed is still reacting too slowly to the threats posed to American manufacturers and farmers by lost foreign markets.
Many economists said Tuesday’s reduction was probably just the first of a series that would send the funds rate down by a full percentage point over the next year.
Federal Reserve Chairman Alan Greenspan first signaled the Fed’s change of heart earlier this month when he warned that the United States was unlikely to remain an “oasis of prosperity” in the face of a currency crisis that began in Asia, then spread to Russia in August and is now threatening countries in Latin America.