Fed Moves to Lower Short-Term Rates; Banks Likely to Follow With Cut in Prime --- Discount Benchmark Is Cut By Half Point, to 5.5%; Federal Funds to 5.75%
WASHINGTON -- With few clear signs of economic recovery on the horizon, the Federal Reserve Board moved to bring down short-term interest rates.</br></br>By a 4-1 vote, the Fed board agreed to cut its discount interest rate by half a percentage point, to 5.5% from 6%. The discount rate -- the rate the Fed charges on loans to financial institutions -- is largely symbolic. But in conjunction with the move, the Fed also quietly lowered its target for the important federal funds interest rate to 5.75% from 6%. Other interest rates are expected to fall in turn.</br></br>The Fed's move followed several days of international meetings at which the Bush administration argued vehemently but unsuccessfully for global interest-rate cuts. President Bush was quick to praise the Fed's action, saying it was "very good news" and showed "a very strong leadership role by the Fed."</br></br>The Fed's action comes as the Bush administration has begun considering whether to reappoint Alan Greenspan as Fed chairman when his term expires in August. Some administration officials -- including Treasury Secretary Nicholas Brady and White House Chief of Staff John Sununu -- have been critical of Mr. Greenspan because of the Fed's reluctance to cut rates. But administration officials said Mr. Bush's praise yesterday is a sign that he is likely to reappoint Mr. Greenspan.</br></br>Officials familiar with the Fed's deliberations say the board has been debating the rate-cutting move for several weeks. Mr. Greenspan and Fed Governor David Mullins are said to have become increasingly concerned about signs of continued weakness among manufacturers. But Governors Wayne Angell, John LaWare and Edward Kelley were all reluctant to move.