Fed Slashes Interest Rate To Record Low

Washington, DC, Dec. 16, 2008--The Federal Reserve slashed the target for a key interest rate to the lowest level on record and pledged to use "all available tools" to combat a severe financial crisis and prolonged recession.

The central bank reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October.

Federal Reserve Chairman Ben Bernanke and his colleagues also pledged to use "all available tools" as they struggle to contain a financial crisis that is the worst since the 1930s and a recession that is already the longest in a quarter-century.

In its statement, the Fed underscored its committment to use extraordinary measures, including using its balance sheet to support the credit markets. The Fed restated its intention to buy large quantities of mortgage-related debt to lower rates on home loans, a plan it first mentioned more than three weeks ago.

The program to buy $600 billion in debt and mortgage-backed securities from mortgage giants Fannie Mae [and Freddie Mac already has helped pushed mortgage rates down.