BY JEFF McKINNEY
The Cincinnati Enquirer
The Federal Reserve - for the third time in seven weeks - gave the economy a boost Wednesday, cutting two short-term interest rates by one-quarter of a percentage point.
The central bank's Federal Open Market Committee voted to reduce the benchmark federal-funds rate, charged on overnight loans between banks, to 4.75 percent from 5 percent.
"Although conditions in financial markets have settled down materially since mid-October, unusual strains remain," the Federal Reserve said.
Wall Street reacted immediately. The Dow Jones Industrial Average shot up as much as 75 points after being down 60 points just before the Fed's 2:17 p.m. announcement. But the market retreated and the Dow closed down 24.97 points at 8986.28.
The reduction is good news for consumers and companies because it lowers borrowing costs on such key things as credit cards, car loans, adjustable-rate mortgages and business loans.
Major banks, including Bank One Corp., PNC Bank Corp., Chase Manhattan Corp. and BankAmerica Corp., responded by slashing their prime lending rates, those charged to banks' most credit-worthy customers, to 7.75 percent from 8 percent.
The prime rate is the interest rate charged to banks' most credit-worthy customers.
Five of Greater Cincinnati's largest banks, including Fifth Third, Star and Provident, are expected to follow suit today.
The federal-funds rate reduction, to the lowest level in four years, was the third since Sept. 29, when the Fed cut rates for the first time since 1995.
The Fed also reduced its discount rate, which it charges on its own loans to banks, to 4.50 percent from 4.75 percent.
Latest news on interest rates from Associated Press
