Fed Meets Street With Quarter-Point Cut

The Federal Reserve on Wednesday lowered its closely-watched target for short-term interest rates by a quarter point, bringing the federal funds rate target to 2%.

The move, made at the end of the regularly scheduled, two-day meeting of the rate-setting Federal Open Market Committee, was widely expected on Wall Street and reflects continued concerns about economic growth amid a slowdown in the U.S. housing market and a persistent credit crisis.

The Fed also cut the discount rate by a quarter point to 2.25%.

Fed governors Richard Fisher and Charles Plosser abstained from the majority's decision once again, preferring no reductions to the fed funds rate target. Minutes from the Fed's March meeting, where the committee lowered its rate target by 75 basis points, revealed that both men shared concerns about rising inflation expectations.

Many market-watchers concluded in recent weeks that the Fed would halt its monetary easing campaign after the April meeting, but the Fed's latest policy statement downplayed inflation concerns while also removing the previous reference to downside growth risks.

"Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months," the Fed's statement said. "The committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully."