Fed Lowers Interest Rates Move Attempts to Spur Economy

By Jim Gallagher Of The Post-Dispatch | St Louis Post-Dispatch (MO), February 1, 1996 | Go to article overview

Fed Lowers Interest Rates Move Attempts to Spur Economy


Jim Gallagher Of The Post-Dispatch, St Louis Post-Dispatch (MO)


The tiring U.S. economy got a small pick-me-up Wednesday as the Federal Reserve shaved a quarter of a percentage point from short-term interest rates.

Banks across the nation quickly lowered their prime lending rates to 8.25 percent from 8.5 percent, the second cut in six weeks.

For consumers, the moves mean slightly lower rates on most credit cards and on home-equity loans that are linked to the prime rate. Those with adjustable-rate mortgages should also see some minor relief on their monthly payments.

Savers, however, will be pinched by lower rates on bank accounts.

The Fed lowered its target for the "Fed funds" rate to 5.25 percent from 5.5 percent. That's the rate banks pay each other for overnight loans and it has a broad effect on other short-term rates.

The Fed lowered the rate by a quarter of a point in July and again in December.

The Fed trimmed its less important "discount rate" to 5 percent from 5.25 percent. That's the rate banks pay when they borrow from the Fed.

The central bank acted in the face of mounting evidence that the nation's 5-year-old economic expansion is running low on steam. The last month brought reports of plunging consumer confidence, sluggish retail sales, a flat housing market and rising loan delinquencies.

"They're going to do everything they can to keep this economy running without drifting down into a recession," said Carl Enloe, chief investment officer at Mark Twain Bank.

The White House welcomed the rate cut. "We believe the economy will remain healthy in 1996," President Bill Clinton said in a statement.

The Fed made clear that keeping a lid on inflation is still a top priority.

"Moderating economic expansion in recent months has reduced potential inflationary pressures going forward," the Fed said in a statement.

Wednesday's report of rising producer prices apparently did not spook the Fed.

The Labor Department reported that wholesale prices rose 0.5 percent in December after a similarly steep hike in November.

Normally, such back-to-back spikes in the Producer Price Index would send out inflation alarms. …

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