Rates Drop

The Federal Reserve lowered short-term interest rates yesterday, for the second time in two months, to calm investors, encourage consumers – especially holiday shoppers – and try to offset the results of the slumping housing market. But it warned that that more reductions were unlikely.

The move, to reduce short-term rates by one-quarter of a percentage point, to 4.5 percent, was aimed at preventing the disruptions in mortgages from crippling the rest of the economy. But the central bank warned that “some inflation risks remain” and played down risks of a possible recession. “The upside risks to inflation roughly balance the downside risks to growth,” it said in a statement. But it predicted that the combination of its rate cut on Wednesday and its half-point cut on September 18 “should help forestall some of the adverse effects on the broader economy.”