FOMC Cuts Target by 25 Bps to 2.00%, Says Economic Activity "Remains Weak"

The Federal Reserve announced Wednesday that it cut the Fed funds target rate by 25 basis points to bring the key interest rate to 2.00%. The discount rate was also cut by 25 basis points to 2.25%.

In an accompanying statement, the Fed said "substantial" easing should promote growth, but that economic growth "remains weak."

The Fed said credit and housing will weigh on economic growth over the next few quarters, adding that financial markets will remain under "considerable stress."

"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity," the statement read. "The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."

Last month's reference to downside risks to growth was eliminated from the statement.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred no change in the target for the federal funds rate at this meeting.

The move was widely anticipated by markets, particularly after a Wall Street Journal article by Greg Ip published last Thursday suggested the Fed would deliver one last quarter-point cut before pausing for "a breather."

At its previous rate decision on March 18, the FOMC cut the target rate by 75 bps and also cut the discount rate 75 bps.

By Stephen Huebl and edited by Nancy Girgis