Consumers can hope for lower rates on adjustable rates credit cards and loans. The marine industry could benefit as well, although time will tell if the central bank's move will have a ripple effect on sluggish boat sales.
"First, it's a good thing," said Jim Coburn, president of the National Marine Bankers Association. "It's good because the banks will lower their prime rate and the cost of floor planning will decrease. But it's too early to tell whether there will be rate cuts in terms of retail finance at this point . We'll know in the next couple days what moves the individual banks will take."
The lower rate "is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets," the Federal Open Market Committee said in a statement.
The federal funds rate, which banks charge each other for overnight loans, had stood at 5.25 percent for more than a year. Most analysts predicted a more cautious decrease.
The Feds also cut the less-significant discount rate on loans to banks by a half a percentage point to 5.25 percent. The discount rate is the interest rate a regional U.S. Federal Reserve bank charges to make loans to depositories to meet temporary cash shortages. The Feds had also reduced the discount rate by a half point on Aug. 17.
Wall Street, which had been pleading for lower interest rates, reacted swiftly. Stocks surged when the news was announced yesterday afternoon.