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Federal Reserve Cuts Fed Funds Target Rate 1/2 Percent to 3.0 Percent. The Federal Reserve today announced announced yet another cut in its benchmark Fed funds target rate, this time reducing short-term rates by 50 basis points to 3.0%. This marks the fifth Fed cut since Sept. 18, when the central bank started bringing rates down (by 50 bps) from 5.25% in response to the seizure in the asset-backed commercial paper market. The Fed has since cut on Oct. 31 (25 bps), Dec. 11 (25 bps), and Jan. 22's surprise 75 bps cut. The Fed's statement says, "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 Fed's moves downard so far total 2.25 percent, while money fund yields, as measured by our Crane 100 Index, have fallen from about 5.0% to just under 4.0%. Thus, money fund yields will continue falling and should stabilize at around 3.0% a month from now. We expect this to be the Fed's last move for some time.
