Federal Reserve, Some Banks Cut Interest Rates

By Caprino, Mariann | THE JOURNAL RECORD, December 8, 1990 | Go to article overview

Federal Reserve, Some Banks Cut Interest Rates


Caprino, Mariann, THE JOURNAL RECORD


NEW YORK - The Federal Reserve and a handful of banks moved Friday to cut interest rates after the government reported the biggest jobless increase in three years, graphic evidence that a recession is sapping the nation's economic strength.

For the third time in six weeks the nation's central took subtle steps to make more money available for banks to lend. The move also raised speculation that the Fed might take even more dramatic steps later to reduce the cost of borrowing to stimulate economic growth.

In addition, three banks cut the prime lending rate for the first time in nearly a year, nudging it to 9 3/4 percent from 10 percent. The prime rate is a base used by banks for pricing a range of businesses and consumer loans, including many types of mortgages.

A reduction in the prime means that many people who may have delayed the purchase of a home or car, for example, would reconsider because a loan is more affordable.

The rate cut, effective Monday, raised anticipation that others would follow. William Sullivan, director of money market research at Dean Witter Reynolds Inc. predicted the 9 3/4 percent ``will become the industry-wide benchmark by early next week.''

The largest bank to trim the prime was First Fidelity Bancorp, the nation's 20th largest banking company and the largest bank in New Jersey. Also announcing cuts were Manufacturers & Traders Trust of Buffalo, N.Y., and Southwest Bank of St. Louis, historically a maverick rate-cutter.

Major banks last cut the rate by 0.5 percent to 10 percent on Jan. 8.

Still, analysts said major banks remain concerned about their profit margins and were hesitating to mark rates down until they had a sense the Fed would act in tandem.

Indications that the Fed was allowing rates to drift lower surfaced around midday. The federal funds rate, the rate banks charge each other on overnight loans, stood at 7 1-16 percent, down from 7 7-16 percent earlier in the week.

The shift in Fed policy was confirmed a bit later when the central bank announced it was injecting $1.

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