In an attempt to reinvigorate what it evidently felt was too slow an economy, the Federal Reserve lowered its benchmark rate – the federal funds target rate on overnight loans – a half-point, to 6 percent. The Fed's statement indicated further cuts were expected.
The move caused the Dow Jones industrial average to rise 299 points, threatened the proposed Bush $1.6 trillion tax cut and injected hope in a retail industry dispirited by a disappointing holiday shopping season. Nonetheless, the full effect of the rate cut is not expected to be felt for several months.
The rate is expected to lift the spirit of investors, with the hope that a rising market will raise the confidence of consumers. “Consumers had become concerned because they thought the economy was slowing down too fast, affecting their job security,” said Richard Curtin, director of consumer surveys at the University of Michigan. Consumer fears and loss of confidence were among the reasons given for the lackluster holiday shopping season last month.