The Federal Reserve Board, slashed its key lending rate by 75 basis points Tuesday to jumpstart the sagging economy and boost confidence in the U.S. financial system. The central bank's action, which drops the federal funds rate target down to 2.25% from 3% -- its lowest level since December 2004 - was the latest in a series of extraordinary moves by the Fed carried out in the last week against a background of turmoil and crisis.
The Fed said the size of the rate cut was enough to promote growth, but left the door open to future cuts. Wall Street had expected the central bank to cut rates by a full percentage point, which would have been the largest cut since 1982. .
"Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity," the Fed said.
Last Tuesday, the central bank announced a $200 billion loan program that would allow the nation's biggest banks to borrow Treasury securities and post mortgage-backed securities as collateral. The financing gave 20 top investment banks 28-day loans at what amounted to wholesale rates — at or slightly below the Fed's benchmark rate on overnight loans between banks.
Henry Paulson Jr., the Treasury secretary, vigorously endorsed the Fed's rescue efforts on Sunday and made it clear he was much less worried about the "moral hazard" of bailing out a Wall Street firm than he was about a chain reaction of defaults if Bear Stearns were to abruptly collapse.
"The right decision here, I am convinced, was the decision that the Fed made, which was to do things, work with market participants to minimize the disruptions," Paulson said on "This Week With George Stephanopoulos" on ABC.
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