The Federal Reserve cut the Fed funds rate by 25 basis points today to 4.50%, which combined with the 50-basis point cut in September will "help forestall some of the adverse effects on the broader economy that might otherwise arise form the disruptions in financial markets." As well, the Fed announced that the discount rate was being lowered by a similar 25 basis points to 5.00% Although the Fed chose to move interest rates lower, the accompanying text implied little inclination to move further on interest rates. The announcement contained a full paragraph on the upside risks to inflation. Specifically, "increases in energy and commodity prices, among other factors, may put upward pressure on inflation." These risks were viewed as essentially balancing the downside risks to growth and indicating that the central bank had moved to a neutral bias.
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