The further reduction of the federal funds rate — which banks charge each other for overnight loans — points to the dire straits of the U.S. economy. The U.S. Federal Reserve cut the target from 1 percent to a range between zero and 0.25 percent.
In an attempt to rescue the economy, the Fed has dared to resort to a virtual zero-interest rate policy for the first time and declared that "exceptionally low levels of the federal funds rate" are likely to last "for some time." Thus it has done all it can as far as rate cuts are concerned.
The Fed's statement, issued after the Federal Open Market Committee unanimously approved the rate cut, also shows that the U.S. economy is in such bad shape that a traditional monetary policy tool is not enough. It said the Fed "will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability." It noted that since the last FOMC session on Oct. 29, labor market conditions have deteriorated and consumer spending, business investment and industrial production have declined.