Fed cuts rate to virtually zero

Fed cuts rate to virtually zero

Washington: The Federal Reserve slashed its base lending rate Tuesday from 1% to virtually zero, saying its target federal funds rate would be a range of zero to 0.25%.

The unprecedented low rate announced by the Federal Open Market Committee is aimed at fighting off deflation and a crippling global credit crunch.

Additionally, the Fed said it would take other steps to stimulate lending and economic activity, including large purchases of mortgage securities to help unblock credit.

“Since the committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," the Fed said after its unanimous decision.

“Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further."

The central bank headed by Ben Bernanke said it would move “to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level."

The Fed said it would “purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets."

The FOMC “is also evaluating the potential benefits of purchasing longer-term Treasury securities" in an effort to bring down other lending rates to stimulate credit and economic growth.

“The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the statement said.