Fed Cuts Rates Again

The Federal Reserve, in a bold bid to keep markets functioning following the terrorist attacks in New York and Washington last week, cut interest rates sharply.

On the first day the stock markets would be re-opened, seen as a test of the economy's strength and resiliency, the Fed said it was cutting the closely watched federal funds rate to 3 percent from 3.5 percent, its eighth rate cut this year. The largely symbolic discount rate was also eased, to 2.5 percent from 3 percent. U.S. borrowing costs now stand at the lowest level in more than seven and a half years.

The Fed said the U.S. economy was shaky even before last week's attacks, and was at greater risk now. “The Federal Reserve will continue to supply unusually large volumes of liquidity to the financial markets, as needed,” the central bank said in a statement, “until more normal market functioning is restored.

The Fed also said it believed the U.S. economy continued to face a bigger risk from weakness ahead than from a possible surge in inflation, signaling it stood ready to make more cuts.