U.S. Fed Cuts Interest Rates a Half-Point

The U.S. Federal Reserve Tuesday cut the federal-funds rate a half-point to 4.75 percent and the discount rate a half-point to 5.25 percent.

The Federal Open Market Committee voted unanimously to cut the funds rate — the rate at which banks lend to each other overnight — from 5.25 percent, where it had stood for more than a year.

The half-point reduction was double the quarter-point move many economists had expected.

Borrowing costs for consumers and businesses are expected to drop as commercial banks match the Fed’s action by cutting their prime lending rate. The prime rate has been at 8.25 percent for the past 15 months.

The discount-rate lowering makes credit easier for banks borrowing directly from the Fed. But its change is generally seen as having largely symbolic importance.

Today’s action is intended to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruption in financial markets and to promote moderate growth over time, the Fed said in an accompanying statement.

The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally, the Fed said.