The Federal Reserve cut a key interest rate Tuesday by a half-point, the fifth reduction this year, in an effort to keep the struggling economy afloat.
The Fed said the rate cut was needed to combat various drags on the economy, including a decline in business investment in new equipment.
``This potential restraint ... continues to weigh on the economy,'' Fed policy-makers said in a statement.
The Fed cut its target for the federal funds rate, the interest banks charge each other on overnight loans, to 4 percent. Stocks were mixed in the wake of the cut. A quarter-hour after the Fed's announcement, the Dow Jones industrial average was down 37 points, unable to sustain a 65-point gain. The Nasdaq index was up 12 points.
Many economists had predicted a half-point cut; others expected a quarter-point reduction. The Fed's action was expected to be quickly followed by announcements from commercial banks that they were reducing their prime lending rate by a similar half point, to 7 percent. The prime rate is the key benchmark for millions of loans, from home equity and unpaid credit card balances to short-term loans for small businesses.
The decision to cut rates came after the Fed's chief policy-making group, the Federal Open Market Committee, met privately.