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Federal Reserve Board Lowers Fed Funds Target Rate 1/4 to 4.5 Percent. The Board of Governors of the Federal Reserve System lowered its benchmark Federal funds short-term rate target to 4.5% from 4.75%, its second reduction in two months. The Fed said, "Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets." We expect money fund yields to fall over the coming weeks by an equivalent 0.25%, so our Crane 100 Index should ease from its current 4.79% to approximately 4.54% over the next five weeks. Markets appear to be discounting the odds of any additional future cuts. The full text of the Fed's statement may be seen here.
