Fed Lowers Interest Rates

March 20 -- Moving to keep an increasingly weak U.S. economic expansion from petering out, the Federal Reserve today slashed short-term interest rates by a half-point for the third time this year.

With today's paring of the federal funds rate by 50 basis points, to 5 percent, the Fed has now initiated the fastest series of interest rate cuts during Alan Greenspan's 14-year reign as the central bank's chairman.

Hinting at the possibility of rate cuts to come, the Fed said its chief concern continues to be the threat that the economy will fall into recession.

"The risks are weighted mainly toward conditions that maygenerate economic weakness in the foreseeable future," the Fedsaid in a statement accompanying the announcement on rates.

The Fed governors also today approved a 50-basis-point reduction in the discount rate, to 4½ percent.

The move to lower interest rates comes as Wall Street's bull market has morphed into a menacing bear. Indeed, investors have shrugged off the Fed's two rate cuts earlier this year. The Nasdaq is down about 18 percent in 2001 and has lost about 63 percent of its value since its peak last March.

Fed Rates and the Dow

And the sell-off has started to broaden beyond technology shares. Last week, the Dow Jones industrial average had its worst week since 1989 and the S&P 500 officially entered bear market territory.

Traders pushed down stocks in heavy trading late today following the Fed's annuncement. The Dow dropped 238 points to 9,720.76. The Nasdaq tumbled 93 points to 1,857.44.

Some on Wall Street had advocated a more aggressive cut of 0.75 percentage point, saying it was needed to get consumers and businesses spending again.

Wall Street has fretted that a continued market slide would further erode consumer and business confidence, prompting a second wave of the ongoing business slowdown.

Investors can expect the Fed to initiate another rate cut, perhaps at its May meeting, said William V. Sullivan, Morgan Stanley senior vice president. "They indicated they are now worried about global economic conditions and they suggest that they're willing to act quickly in the future to support a sagging economy."