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Dow Surges 330 Points After Surprise Interest Rate Cut

By Jonathan Peterson
Los Angeles Times
WASHINGTON

In a sign of heightened worries about the U.S. economy, the Federal Reserve unexpectedly lowered interest rates Thursday for the second time in less than three weeks.

The central bank's decision to cut two short-term rates by a quarter of a percentage point each caught Wall Street by surprise and sparked an explosive rally that sent the Dow Jones industrial average soaring 330 points.

The move came amid increasing evidence that overseas financial turmoil has injured American companies and begun to put a squeeze on available credit in this country.

Analysts regarded Thursday's action as part of a series of rate cuts that could continue into next year. The extraordinary timing - a month in advance of the scheduled Nov. 17 meeting of the Fed's policy-making committee - underlined the urgency seen by the Fed.

"What raises a concern in my mind is why did they have to do it now?" asked Chris Varvares, an analyst with Macroeconomic Advisers in St. Louis. "Why couldn't they wait?"

The central bank eased the federal funds rate, which banks charge each other for overnight loans, to 5 percent from 5.25 percent. Fed officials had lowered that same rate by a quarter point on Sept. 29.

The Fed also lowered the discount rate, which it charges commercial banks for emergency loans, to 4.75 percent from 5 percent.

It was the first time the Fed acted between meetings of its rate-setting Federal Open Market Committee since April 18, 1994.

In a statement, the Fed in effect warned that lower rates were needed to combat an economic slowdown because worried lenders have become less willing to provide credit and a plunging stock market is taking a toll on American consumers and business.