The Fed lowered the interest rate financial institutions charge each other on overnight loans to 4.5% from 5% and lowered by a half-percentage point to 4% the discount rates financial institutions pay when they borrow from a federal reserve bank.
"It's very good news," says Bill Shanahan, executive director at Cushman & Wakefield Inc. Financial Services. "From a general perspective, it puts more money in the economy. They are loosening up the money supply, which is what people look at."
The vote taken by the Federal Open Market Committee during a telephone conference call caught most investors by surprise. According to Fed officials, the FOMC--the Fed's top policymaking group--was prompted to cut the rates due to reports of softening capital investment, an erosion in current and projected profits and rising uncertainty about the economy.
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