The Federal Reserve entered a new era on Tuesday, setting its benchmark interest rate so low that it will have to reach for new and untested tools in fighting both the recession and downward pressure on consumer prices.
Going further than analysts anticipated, the central bank said it had cut its target for the overnight federal funds rate to a range of zero to 0.25 percent, a record low, bringing the United States to the zero-rate policies that Japan used for six years in its own fight against deflation.
The move to a zero rate, which affects how much banks charge when they lend their reserves to each other, is to some degree symbolic. Though the Fed’s target had previously been 1 percent, demand for interbank lending has been so low that the actual Fed funds rate has hovering just above zero for the past month.
Republicenomics at action!