Fed beats expectations; cuts key rate by 50 bps

The Federal Reserve cut a key interest rate for the first time in four years, seeking with an aggressive half-point move to prevent a steep housing slump and turbulent financial markets from triggering a recession. The Fed announced on Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25% to 4.75%. The halfpoint reduction was double the quarterpoint move that many economists had been expecting. Commercial banks were expected to quickly match the Fed’s action by cutting their prime lending rate. The prime rate has been at 8.25% for the past 15 months.