WASHINGTON -- The Federal Reserve moved aggressively again Tuesday to prop up the nation's attack-rattled economy by cutting its benchmark interest rate to a 40-year low. It was the central bank's 10th cut this year.
Fed Chairman Alan Greenspan and his colleagues on the policymaking Federal Open Market Committee dismissed suggestions that they throttle back on the size and pace of their rate cutting. They slashed the federal funds rate, which banks charge each other for short-term loans, a half percentage point to 2 percent. The rate began the year at 6.5 percent.
"They certainly weren't being timid," said John P. Lipsky, chief economist of J.P. Morgan Chase Corp. in New York. "I think they decided there's no honor in erring on the side of caution."
Indeed with their latest cut, Fed officials pushed the real, inflation-adjusted value of the funds rate toward negative terrain. That set up the enticing possibility of being able to borrow at rates so low that inflation would offset the interest costs.
"In effect, it's giving away money," said Robert E. Litan, economic studies director at The Brookings Institution, a Washington think tank.
Of course, average Americans can't borrow at the fed funds rate, and the loan rates and credit charges they do face have not dropped anywhere near as steeply. For example, while the Fed has chopped a full 4.5 percentage points from the funds rate since January, the rate on a typical 30-year fixed mortgage has declined less than a point.
Nevertheless, analysts said the Fed's rate-cutting campaign produced results ordinary people could see. It spurred a mortgage refinancing boom that is likely to hit a record $1 trillion by year's end. It contributed to an unexpected burst in auto sales last month, egged on by carmakers' heavily promoted 0 percent financing deals.
"It's unambiguously provided a tonic for housing and cars," said Paul A. McCulley, an economist and fund manager with Pacific Investment Management Co. in Newport Beach, Calif.
Despite such bright spots, however, the economy has turned out to be in much worse shape than analysts and policymakers thought even in the immediate aftermath of the September attacks, and the news has only been getting bleaker.
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