The Fed s previous cuts this year totaled 1.5 percentage points. The Fed on Wednesday also cut its mostly symbolic discount rate by a half point to 4 percent. The discount rate is the interest that the Fed charges to make direct loans to banks. Capital investment has continued to soften and the persistent erosion in current and expected profitability in combination with rising uncertainty about the business outlook seems poised to dampen capital spending going forward, the Fed said in its statement. The economy grew at an annual rate of just 1 percent in the final three months of 2000, the weakest performance in more than five years.
Many economists believe the economy continued to lose altitude in the recently ended first quarter.
Some analysts project that economic growth stalled during the January-March quarter, and others say it may actually have slipped into reverse. Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, welcomed the Fed s latest rate cut. Aggressive action is needed to keep the economy above water. It s a lot easier to prevent a drowning than it is to rescue the drowned, he said. Lower interest rates can do more in the way of an immediate economic stimulus than anything Congress can do, he added.