The Federal Reserve Board decided to lower interest rates another 1/2% because it continues to be more worried about unacceptably slow economic growth than about inflation.
The Fed’s action today (May 15) means, in all likelihood, major banks will lower their benchmark prime interest rates to 7% as soon as possible.
A 7% prime rate would be lowest since May 1994.
Although the selling-off of excess business inventories “seems well advanced,” the Fed decided to lower interest rates again because consumer spending and the housing market “flattened recently.”
The uncertain business outlook and eroding profits are holding down new investments in factory and office equipment, which also worries the Fed.
Meanwhile, the labor market has become less tight and the growth of worker productivity, although it stalled in the first quarter, is poised to start on an upward trend again. Consequently, inflation is less of a concern than slow growth, according to the Fed.
The next regularly scheduled Fed meeting will be June 26-27.