Amid growing fears that the recession and the banking crisis may be worsening, the Federal Reserve Board moved yesterday to cut interest rates again, the sixth reduction it has engineered since Iraq's invasion of Kuwait last August.
Although the Fed made no announcement of its move, it apparently cut the benchmark federal funds rate to 6.75 percent, down a quarter of a percentage point from its previous level of 7 percent, market analysts said.
The federal funds rate -- the interest that banks charge each other for short-term, overnight loans -- has been cut by the Fed five times since August, when it stood at 8 percent. Although the board cannot force banks to go along, it manipulates the rate through its intervention in the credit markets.
In addition to the fed funds rate reductions, the central bank cut the discount rate -- the interest the Fed charges member banks for loans -- by half a percentage point shortly before Christmas.
Besides the rate cuts, the Fed moved late last year to ease its grip on monetary policy by reducing its requirements on the amount of money banks must hold in reserve to back up their deposits, a policy change that freed up more funds for consumer and commercial lending.
The latest move followed a flurry of actions by the Fed in December to ease its grip on the economy. Coming so quickly after the discount rate reduction, the federal funds rate cut signals Fed Chairman Alan Greenspan's increasing concern about the health of the banking industry and the economy in general, analysts said.
Analysts noted that the key economic indicators monitored by the Fed as it sets interest rate targets are looking uniformly grim.
In fact, one of the Fed's most important indicators -- the rate of growth of the money supply -- has offered particularly negative readings lately. Money supply growth fell to an annual rate of zero during the fourth quarter, far below the central bank's targets.