Action by the Federal Open Market Committee and a Decrease in the Discount Rate

Federal Reserve Bulletin, June 2001 | Go to article overview

Action by the Federal Open Market Committee and a Decrease in the Discount Rate


The Federal Open Market Committee decided on April 18, 2001, to lower its target for the federal funds rate by 50 basis points to 41/2 percent. In a related action, the Board of Governors approved a 50 basis point reduction in the discount rate to 4 percent.

The FOMC has reviewed prospects for the economy in light of the information that has become available since its March meeting. A significant reduction in excess inventories seems well advanced. Consumption and housing expenditures have held up reasonably well, though activity in these areas has flattened recently. Although measured productivity probably weakened in the first quarter, the impressive underlying rate of increase that developed in recent years appears to be largely intact.

Nonetheless, capital investment has continued to soften and the persistent erosion in current and expected profitability, in combination with rising uncertainty about the business outlook, seems poised to dampen capital spending going forward. This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, threatens to keep the pace of economic activity unacceptably weak. …

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