Federal Reserve Again Relaxes Its Credit Grip --- Move Comes Just 2 Weeks After Previous Easing; Rate May Drop to 8 1/4%
WASHINGTON -- The Federal Reserve, responding to signs of further weakness in the economy, eased its grip on credit just two weeks after it had last moved.</br></br>The action is expected to push down the closely watched federal funds rate, at which banks lend to each other, 1/4 percentage point to about 8 1/4%.</br></br>Other short-term interest rates are likely to drop as well. Most banks' prime lending rate, which remained at 10 1/2% after the Fed eased earlier this month, could begin falling as early as today.</br></br>The move touched off modest rallies in stocks and bonds Wednesday, with the Dow Jones Industrial Average gaining 17.49 points to 2656.78 in pre-holiday trading.</br></br>Government officials indicated that the timing of the Fed move, so soon after the previous one, reflects the degree of concern at the Fed about the slowing of the economy, most notably the manufacturing sector. Fed Chairman Alan Greenspan follows that sector with particular interest.