Fed expected to cut key interest rate
WASHINGTON (AP) ” Federal Reserve policymakers are widely expected to slice a key interest rate for a third time this year to prevent troubles in the housing and credit markets from sinking the economy.
Fed Chairman Ben Bernanke and his colleagues gather Tuesday, their last meeting of the year, to assess the economy and decide their next move on interest rates.
Analysts predict the Fed will trim its key rate, now at 4.5 percent, by one-quarter of a percentage point at that time. A few even speculate about the possibility of a half-point cut.
If the Fed cuts its key rate, commercial banks would lower their prime lending rate ” now at 7.5 percent ” by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans.
The rationale behind the lower rates is that they will induce consumers and businesses to boost spending, energizing economic activity.
From July through September, the economy logged its best growth in four years. But it is expected to slow to a pace of just 1.5 percent or less over the final three months of the year as the housing collapse and credit crunch chill consumers, sapping overall economic growth.
Oil prices, which had neared $100 a barrel, have moderated. But they are still high. High energy prices are a double-edged sword. They can slow economic activity and spread inflation if they cause the prices of lots of other goods and services to rise.
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