Fed cuts rates to 4.5%

Citing turmoil in the housing market, Fed chair Ben Bernanke and Co. lower a key short-term rate by a quarter of a percentage point to keep the economy on track.
October 31 2007: 2:18 PM EDT

NEW YORK (CNNMoney.com) -- The Federal Reserve lowered the target for a critical short-term interest rate by a quarter of a point Wednesday, citing continued concerns about the housing market crunch.

The widely-expected move comes on the heels of a half-point rate cut by the central bank in September and leaves the federal funds rate at 4.5 percent, its lowest level since April 2001.

The federal funds rate, an overnight lending rate for banks, is important to the economy since it influences how much interest consumers pay on credit card debt, home equity lines of credit and auto loans. It also impacts how much it costs corporations to borrow money.

Weakness in the housing market and problems with subprime mortgages, loans made to those with less-than-perfect credit, have led to billions of dollars in writedowns at major financial institutions. For this reason, most investors believed the Fed would lower rates again in order to ensure that there is little spillover from the mortgage meltdown into the broader economy.

But some market observers have expressed concerns that with oil prices rising above $90, inflation may still be a threat. So the Fed could be making a mistake by lowering interest rates further, some maintain.

(http://money.cnn.com)