voa economic report - US Central Bank Moves to Ease Credit, Protect Economy

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is the VOA Special English Economics Report. A listener Indonesia named Efendy asks why the Federal Reserve is important and how it works. This week offered a example. The Federal Reserve System is the United States bank. Its Federal Open Market Committee, led by Fed Ben Bernanke, makes monetary policy. It makes decisions that the cost of money and credit in the economy. Tuesday the committee lowered its target for the federal rate to four and three-quarters percent. This rate is banks pay other banks to borrow money overnight. It the first cut in four years. Major banks including of America, Wachovia and Wells Fargo soon followed with in their prime rate. This is what banks charge best customers. Financial markets expected a rate cut from Fed. But the size ---- fifty basis points, or a percentage point ---- was double what many people . And it persuaded many that the Fed is more about the possibility of a recession than about inflation. concerns rose earlier this month on news that in the economy lost jobs for the first time in years. That added to worries about the housing finance . The committee said economic growth was moderate during the half of the year. But it said the reduced of credit could intensify the current housing problems and economic growth. The policy makers also said that some risks remain and will be watched carefully. The Fed's will help some homeowners and other borrowers. What is clear, though, is how much it will do for homeowners facing sharply higher payments. Their payments on adjustable-rate will still go up, though not as high as would have. By the end of next year, an two million or more holders of subprime loans will their rates reset higher. These loans were made to with weak credit histories. The Fed also cut its rate for direct loans to banks by half a , to five and one-quarter percent, to increase their lending . The traditional opinion of borrowing from the so-called discount was that it represented a sign of weakness. Stock rose sharply after the Fed cut interest rates. But everyone was so pleased. Some experts warn that cutting could raise inflation. They also say it helps those made unwise borrowing decisions. And that's the VOA Special Economics Report, written by Mario Ritter. I'm Jim Tedder.

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