The U.S. Federal Reserve on Friday cut the discount rate governing direct Fed loans to banks by a half-percentage point in a surprise move aimed at keeping credit flowing and calming jittery global markets.
In a statement announcing the decision, which had no impact on the benchmark federal funds rate -- the Fed's main economic policy lever -- the central bank said downside risks to growth had increased appreciably.
While it took no action to lower the federal funds rate, the policy-setting Federal Open Market Committee said it was monitoring conditions and was prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.
Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward, the FOMC said.
The reduction took the primary discount rate to 5.75 percent from 6.25 percent. The federal funds rate remains at 5.25 percent.
To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility, the board said.
The move could lower the cost of capital for banks and help keep credit flowing through the economy at a time when investors have shown a greater reluctance to lend.
The Fed also said it would allow its regional banks to provide term financing for as long as 30 days.