The announcement by the Federal Reserve Board that it has cut its benchmark overnight federal funds rate, the rate at which banks lend to one another, to a "target range" of between one-quarter percent and zero is both an acknowledgment of reality and a sign of panic. Since banks, even in the wake of huge infusions of capital from both the Treasury and the Fed, aren't lending much to each other, anyway, the effective interest rate was already close to zero.
By setting its "target" rate at close to zero, the Fed essentially made public that, for the foreseeable future, the traditional method the Fed uses to try to pump up a flagging economy - lowering interest rates to loosen the credit markets - won't work.
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