Fed Shaves Interest Rates by Quarter Point

December 11, 2001 (PLANSPONSOR.com) - The Federal Open Market Committee sliced another quarter percent off its federal funds rate target, to provide the economy with some much-needed stimulus

The key interest rate, at which US banks lend their surplus reserves to each other overnight, – already at the 40-year low of 2% – now stands at 1.75%.

Participants in 401(k) programs with loan interest rates benchmarked to bank prime rates will likely benefit from matching cuts in those prime rates over the next couple of days, to 4.75% from 5.0%. 

The quarter point cut was in line with the unanimous expectations of primary dealers polled by Reuters, who expect the Fed to now shift to smaller cuts.

With this latest cut, the eleventh this year, the Fed hopes to kick-start an economy now officially in recession.

Recent economic releases have been lackluster, with November’s unemployment figure reaching 5.7% from its low of 3.9% a little over a year ago, and gross domestic product negative for two consecutive quarters.

In its statement, the Fed commented that, “the economic activity remains soft,” adding that, “against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.”