Wells Fargo, Wachovia and U.S. Bancorp immediately lowered their prime lending rates from 4 percent to 3.25 percent, and other banks will probably follow suit. Economists cautioned, though, that people frightened by the economy and worried about their own jobs may not feel like taking on more debt.
The Fed's action was unprecedented in the central bank's 95-year history, and Wall Street embraced it. The Dow Jones industrials, which had been up about 120 points ahead of the Fed announcement, finished the day up nearly 360, a gain of more than 4 percent.
For the first time, the Fed created a target range for its funds rate, putting it at zero to 0.25 percent. That was a dramatic reduction from the previous rate, which was an already low 1 percent. The federal funds rate is the interest that banks charge each other for overnight loans.
The radical action underscores the breathtaking deterioration in the U.S. economy and the stability of the financial system this fall, and even since Fed policymakers last gathered in late October.
