Fed Slashes Interest Rate to 1.5 Percent

On Wednesday the Federal Reserve cut a key interest rate by half a percentage point in an emergency attempt to steady an economy teetering on the edge of a collapse unlike this country has seen since 1929. Federal Reserve Chairman Ben Bernanke dropped the key rate by .5 percentage point to just 1.5 percent. Other central banks also cut their rates in a coordinated move with the Federal Reserve.

Cutting the interest rate revives the Fed's rate cutting campaign that had been halted in June due to concerns that low rates would worsen inflation. The economic and financial conditions in the US have deteriorated even more so since early summer, giving them no other choice but to reverse course.

The Fed's regularly scheduled meeting isn't until October 28-29, and the fact that they felt they couldn't wait until then further displays the urgency of the situation.

The Federal Researve also reduced its emergency lending rate to banks by half a percentage point to 1.75 percent. Given the current credit crisis, banks have been quick to borrow from the emergency window.

As a result of the rate cut today, the prime lending rate for millions of borrowers will drop by a corresponding amount. This applies to home equity lines of credit, certain credit cards, and other various loans. The hope is that the rate cut will help spur consumer spending, which has curbed in light of credit and financial problems intensifying last month. Many people believe that the US is in the midst of its first recession since 2001.