The Fed's chief teased last week and the Federal Reserve Board followed through today when the Federal Open Market Committee decided to lower the federal funds rate by a quarter-point -- the first movement in almost three years.

``The Federal Open Market Committee decided today to ease the stance of monetary policy slightly, expecting the federal funds rate to decline one quarter percentage point to around 5-1/4%," the board said in a written statement. ``The action was taken to cushion the effects on prospective economic growth in the United States of increasing weakness in foreign economies and of less accommodative financial conditions domestically.

``The recent changes in the global economy and adjustments in U.S. financial markets mean that a slightly lower federal funds rate should now be consistent with keeping inflation low and sustaining economic growth going forward," the statement read. "The discount rate remains unchanged at 5%.''

Economists and analysts say the lower rate will not have any immediate impact on 30-year fixed mortgage rates, but as one spokesman for the real estate industry put it, it certainly can't hurt.

"We're always in favor of lower rates," said Jeff Lubar, vice president and spokesman for the 700,000-member National Association of REALTORS®. "Better rates mean more home purchases."

The news of the Federal Reserve Board's decision to lower rates comes hot on the heels of bad news from the Conference Board that Americans' confidence in the U.S. economy fell for the third straight month in September.

The Conference Board reported just hours before the Fed's announcement that its index of consumer confidence fell 7.1 points to 126 in September, from a revised 133.1 in August. The index is down 12.2 points from its 29-year high in June.

September's decline was larger than Wall Street analysts had expected and the biggest monthly drop since January. It brings the index to its lowest level since October 1997.

``We are beginning to see the financial ails of others arrive at the shores of the U.S., and that will result in some degree of slowing of the economy,'' said Dan Seto, an economist at Nikko Securities International Co. ``Consumers realize this and they are just becoming a bit more cautious.''

Published: September 29, 1998

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