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Comment: FOMC takes first intermeeting rate action since October 2008

On Tuesday, March 3, the FOMC announced an intermeeting rate cut of 50 basis points in the fed funds target range to 1.00%-1.25%, the discount rate to 1.75%, IOER to 1.10%, and the ON RRP offer rate by 40 basis pints to 1.10%.

There hasn’t been an intermeeting rate cut since October 7, 2008 when the fed funds rate was reduced 50 basis points to 1.50% as part of the series of rate cuts during the financial crisis that culminated with the decision to head for the zero lower bound with a range of 0%-0.25% on December 16, 2008. There also hasn’t been a cut of 50 basis points or more since December 16, 2008.

It is also unusual that the FOMC would decide to take action now with the March 17-18 FOMC meeting not that far way. Since it began to announce rate decisions in conjunction with the release of the meeting statement, the FOMC has preferred to do so to avoid spooking markets. In this case, it should offer reassurance. After the release of the G7 statement earlier in the day, the FOMC action should be taken in the context of a precaution to ensure that the present fundamentally strong US economy remains so. It could also be taken as part of the FOMC’s recent monetary policy framework review that suggested that policymakers were prepared to act sooner and more aggressively in the event of a downturn. With some warning signs developing quickly, it would seem the Committee was ready to put that into action.


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