Fed Cuts Key Interest Rate to Historic Low

The ""Federal Reserve"":http://www.federalreserve.gov yesterday slashed its benchmark federal funds rate - the overnight rate at which banks lend to each other - from 1 percent to a target range of 0 percent to 0.25 percent, the lowest rate on record.
In the last 15 months, the target federal funds rate has been cut 10 times. By dropping this key interest rate to almost nil, the U.S. central bank has exhausted what has historically been its most fundamental tool for managing the economy. With yesterday's announcement, the Fed has done all it can with ordinary rate cuts, and said that because of continuing weak economic conditions, it is likely to leave its key short-term lending rate at ""exceptionally low"" levels for ""some time.""
Fed policymakers are now promising aggressive new initiatives to combat the country's deepening recession, vowing to use ""all available tools"" to shore up the U.S. economy and provide ""sustainable economic growth.""
""As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant,"" the central bank said in a ""press statement"":http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm.
The Fed strongly suggested it would use unconventional means to lower the rates consumers pay for mortgages, as well as other loans, and ""facilitate the extension of credit.""
Before Tuesday's unanimous vote by the Federal Reserve committee in favor of the zero to a quarter percent target range, economists were expecting the central bank leaders to drop the benchmark rate to 0.5 percent, according to a ""_CNBC_"":http://www.cnbc.com report.
Stocks surged after yesterday's announcement and the Fed's pledge for broad economic support. The Dow Jones Industrial Average rose 360 points to 8,924.14. The S&P 500 advanced nearly 45 points, or 5.1 percent, to 913.18, and the Nasdaq composite index went up 81 points, or 5.4 percent, to 1,589.89. According to the _""Los Angeles Times"":http://www.latimes.com_, the number of stocks advancing outnumbered those declining 5 to 1 on the New York Stock Exchange.