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Federal Reserve Cuts Interest Rates The Federal Reserve recently cut the key interest rate one-quarter percent, in hopes of revive a struggling economy. The prime rate will fall to four percent, and some home equity loans, auto loans, and variable rate credit card rates may also drop. This is the lowest level since Dwight Eisenhower was president. (http://www.yahoo.com) Lower interest rates encourage people and businesses to borrow money and spend it on …

…a sign that not only were the federal fund rate going to drop, but those rates would be lower for quite some time. (http://www.yahoo.com) The Fed believes the economy is rebounding, and that there will not be a need to reduce rates any further. The reduction of the interest rate is an example of monetary policy the government is using in an attempt to control, and hopefully improve, the economy. (Colander, D. 2001)