Fed Cuts Rate by 50 bps

May 15, 2001 (PLANSPONSOR.com) - As anticipated, the Federal Open Market Committee Tuesday cut the Fed Funds rate by 50 basis points in a continuing effort to boost what it said was a still flagging economy.

“The erosion in current and prospective profitability, in combination with considerable uncertainty about the business outlook, seems likely to hold down capital spending going forward,” the Fed said in a mid-afternoon statement. “This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, continues to weigh on the economy.”

The cut follows recent data releases showing a weak manufacturing sector and increasing unemployment, which threaten to tip the economy into recession. The economy is kept afloat chiefly by construction activity and consumer spending.

US investors flip-flopped after the Fed’s announcement as The Dow Jones Industrial Average fell, undoing a bounce up that occurred immediately after word of the rate cut was released.

The Nasdaq composite index was modestly higher, pulling back from an initial surge.

So far the central bank has cut rates four times since the start of the year in an attempt to spur investment and bolster economic growth.