SAN FRANCISCO (KCBS) -- The Federal Reserve cut a key interest rate by one-quarter of a percentage point Tuesday, but Wall Street took a tumble. Investors were disappointed that the central bank did not act more boldly to keep the country out of a recession.
The reduction in the federal funds rate to 4.25 percent marked the third rate cut in the past three months. Fed officials signaled that further cuts were possible if a severe housing downturn and mortgage lending crisis get worse.
Commercial banks quickly matched the Fed move by trimming their prime lending rate to 7.25 percent. That put the benchmark rate for millions of business and consumer loans at its lowest point in two years.
The market did not respond favorably. The Dow Jones industrial average quickly plunging more than 200 points immediately after the Fed’s comments.
But many consumer groups feared the rate cut would imbue consumers with a false sense of confidence and inadvertently encourage buying on credit.
(jro)
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KCBS's George Harris reports
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