Fed cut rates to near zero; desperate efforts to bring inflation back

WASHINGTON, December 17, 2008 (AFP) – The Federal Reserve used up its ammunition on monetary policy Tuesday by slashing its base lending rate to virtually zero but pledged further efforts to stimulate credit and revive a moribund economy. The actions by Fed chairman Ben Bernanke and his colleagues put the central bank on track toward the kind of extraordinary actions used by Japan to stave off deflation and fire up growth in the 1990s.

The central bank’s Federal Open Market Committee lowered its target federal funds rate from 1.0 percent, already at a historic low, to a range of zero to 0.25 percent. It also predicted “exceptionally low” rates to persist “for some time.”

“This is an historic move and it will go down in the annals of Fed history as the most aggressive attempt ever to reverse a deep recession, prevent deflation and spur financial market re-normalization,” said Sherry Cooper, chief economist at BMO Capital Markets.

Cooper said that while the Fed is “running out of basis-point ammo,” it will shift to other steps such as buying assets such as mortgage or Treasury securities or anything else to get credit flowing.

“The Fed is set to take extraordinary steps to boost the quantity of money in the world’s larges

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