Fed Pushes A Key Rate Downward; Central Bank Seeks To Lower Borrowing Costs, Aid Economy
The nation's central bank yesterday pushed a key interest rate lower in an effort to put more steam into an economy that has not yet broken free of recession.</br></br>The Federal Reserve Board added reserves to the nation's banking system, thus lowering the federal funds rate - the interest banks charge to borrow money from each other overnight - to 5.5 percent, down from the 5.75 percent rate that has been the Fed's target since April, economists and market analysts said.</br></br>Wall Street reacted favorably to the rate cut, with stocks recording their biggest gains in more than a month. The Dow Jones industrial average of blue-chip stocks climbed 38.24 point, or 1.3 percent. {Details on Page C9.}</br></br>Although the Fed does not announce changes in the federal funds target, its action was widely interpreted as a signal of a basic shift in policy, economists said. The central bank now appears more concerned with preventing a second economic slump - a "double-dip recession" - than it is about keeping a tight lid on inflation.</br></br>"The fear that the recovery is not happening weighs heavier than the fear of inflation," said Stephanie Murphy, economist at Manufacturers Hanover Securities Corp. in New York.