Fed Cuts Discount Rate
08/17/07 - 09:22 AM EDT
Chris Nichols
Updated from 8:59 a.m. EDT
The Federal Reserve reduced the rate it charges banks who want to borrow from it, saying financial market conditions have deteriorated, and tighter credit and increased uncertainty have the potential to hinder economic growth. By lowering the discount rate by 50 basis points Friday, rates will go to 5.75% from 6.25%. With the cut, the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate is now 50 basis points. The fed funds rate, the rate banks use to charge each other interest on overnight loans, was unchanged at 5.25%. Some investment banks, including Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) and Goldman Sachs (GS Quote - Cramer on GS - Stock Picks), are now expecting the Fed to lower the fed funds target. The Fed has added billions of dollars in liquidity to the system in recent days, including $17 billion on Thursday, but it had yet to take any action on rates. Markets worldwide have slumped lately as worries about access to credit, stemming from a seize-up in the mortgage sector, have spread. Names like Countrywide (CFC Quote - Cramer on CFC - Stock Picks), KKR Financial Holdings (KFN Quote - Cramer on KFN - Stock Picks) and Thornburg Mortgage (TMA Quote - Cramer on TMA - Stock Picks) are among the U.S. stocks that have been hit hard at least once this week as investors grew increasingly jittery about the companies' financial health. Because of the current situation, "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."
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