U.S. Fed Reserve Could Slash 25 Points More In Discount Rate Before Dec 11 Meeting

December 3, 2007 7:56 a.m. EST

Washington, D.C. (AHN) - The U.S. Federal Reserve cannot take it anymore as the country's economy is slowing down and money markets are strained.

The feds have decided to provide more cash to the banks and lenders through another cut in the discount interest rate.

The Feds has already cut the funds rate two times in the last three months, brining the short-term interest rates to 4.50 percent.

This time, the Feds are likely to reduce its discount rate by 25 basis points down to 4.75 percent.

With the move, they hope to bring some easiness in to the financial markets, which are stressed due to credit crunch and the deepening housing slump.

According to the Financial Times, the cut in the discount rate penalty could be announced before December 11 monetary policy meeting.

Additionally, during the meeting of the Federal Open Market Committee, the Fed may decide to further cut an extra 25 basis points if they plan to cut funds rate for the third time this year, the FT reported.

The discount rate cut would attract some banks to use the discount window as the small lenders do not borrow much of their funds under the discount rate borrowing penalty.

However, the Feds cannot afford to eliminate the discount rate borrowing penalty completely.