Fed cuts discount rate by 50bp amid increased uncertainty

WASHINGTON, Aug 17, 2007 (AFP) – The US Federal Reserve said Friday it had cut its discount window rate by 50 basis points to 5.75 percent citing “increased uncertainty” in the financial markets. The Fed moved to lower the overnight interest rate it charges members banks for loans in a bid to help soothe the US banking system which has been stressed in the past week by a credit crunch linked to the distressed housing market. “Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,” the Fed cautioned in a statement.

Dow Jones Industrial Average futures trading jumped sharply in the wake of the Fed’s announcement, surging 201 points to around 13,145 points at 1346 GMT, ahead of the formal opening of trading on Wall Street.

The central bank’s move does not affect its key short-term federal funds interest rate which stands at 5.25 percent.

The Fed — which has also injected tens of billions of dollars into the stretched financial system in the past week — said it had trimmed its overnight discount rate in a bid to restore “orderly conditions in financial markets” which have been