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The Federal Reserve cheered investors by cutting its fed funds target rate (again) by 50 basis points to 3%, as most economists expected they would, capping an eight-day spat in which the key lending rate fell an unprecedented 1.25%. The cut was accompanied by a like cut to the discount rate, bringing it to 3.5%.

In its statement (see below), the Fed expressed hope the massive cuts might suffice to promote "modest growth," but stressed it was ready to make further cuts "in a timely manner" should downside risks play out.

Richard W. Fisher was the sole dissenting vote; Fisher would have preferred to keep the rate untouched.

Equity markets jumped strongly following the announcement; Treasury bonds and notes were down sharply.

FOMC Statement

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

Source: Fed Cuts to 3%