The U.S. Federal Reserve sought to bring order to volatile financial markets experiencing tighter credit conditions on Friday by lowering the rate at which it makes short-term loans to commercial banks and other institutions.
The Fed reduced its discount rate by half percentage point to 5.75 percent, saying it was attempting to restore orderly conditions.
As recently as 10 days ago, the Fed kept rates steady based on moderate growth and a robust global economy. It said its primary concern was to keep inflation down.
In its statement today, the Fed said financial market conditions had deteriorated, to the point where they had the potential to slow down the economy.
In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably, the Fed noted.
The Board also approved renewable term financing for up to 30 days, adding that the changes will remain until market liquidity has improved materially.
The bank added that it would continue to accept a broad range of collateral for so-called discount window loans, including home mortgages and related assets.