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
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."
The statement suggested that the FOMC remains focused on threats to economic growth.
"Recent information indicates that economic activity remains weak," the statement said. "Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."
The statement also appeared to leave the central bankers substantial leeway to change course as new information about economic conditions emerges.
"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity," said the Fed. "The committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."
The central bank has now lowered its federal funds rate by 325 basis points since the outbreak of the credit crisis last summer. The Fed's actions have been the subject of intense debate as the economy has continued to show signs of a slowdown amid rising signs of inflation, especially in food and energy prices.
The Commerce Department reported Wednesday morning that the
in the first quarter. Despite a weak showing, continued growth challenged the widespread belief on Wall Street that the economy is already in recession, which has been traditionally defined by two successive quarters of negative GDP growth. The report sparked a debate among investors on the current state of the economy and the definition of a recession.
Some observers are reserving judgment of the fate of the near-term U.S. economy, as they wait for some indication of whether recent monetary and fiscal policy measures from the government will succeed in stimulating growth. In addition to the aggressive moves by the Fed on interest rates, tax rebates -- the centerpiece of the government's $168 billion stimulus package enacted in February -- are now hitting taxpayers' bank accounts and mailboxes, intended to boost consumer spending and confidence.
On Tuesday, Standard & Poor's reported that its Case-Shiller home price index of 20 cities fell by 12.7% in February vs. last year, the largest decline since its inception in 2001. Seventeen of the 20 metro areas reported record annual declines.
Also, the Conference Board said that its Consumer Confidence Index, which declined sharply in March, fell again to 62.3 in April. That's down from the revised 65.9 last month and 76.4 in February. The consumer sentiment index, tracked by the University of Michigan, has also dropped to its lowest levels in over a quarter-century after the U.S. recorded three-straight months of declines in the job market.
Meanwhile, widened credit spreads only began to narrow after the Fed aided
purchase of a near-bankrupt
( BSC) and extended credit to Wall Street investment banks like
( LEH) and
( MER) through a series of new lending facilities under authorities the central bank had not exercised since the Great Depression.
The implicit government backing of investment banks and mortgage giants like
( FNM) and
( FRE) also was welcomed by financial markets.
The Fed's increasingly activist role during the credit crisis has elicited recent criticism from ex-central bankers Vincent Reinhart and Paul Volcker.