After several weeks of internal debate, the Federal Reserve has taken a cautious first step toward lowering interest rates, many economists believe.
The action, if followed by further moves by the central bank to loosen its grip on credit, will spell lower borrowing costs for businesses and consumers, including declines in mortgage rates, the economists said.A move to lower interest rates would mark a major policy shift by the central bank, which launched a campaign in March 1988 to push interest rates higher in order to fight inflation.
Federal Reserve Governor Martha Seger refused to respond directly to reporters' questions Wednesday over whether the Fed had indeed loosened monetary policy. However, she said, "Let me put it this way: I have been opposed to further tightening since late last year."
Seger, who has been a frequent dissenter inside the Fed arguing for lower interest rates, responded with a terse "no comment" when asked whether the Fed should do even more in pushing interest rates lower.
She said following a congressional appearance that it still remained to be seen whether the Fed's yearlong anti-inflation campaign had slowed economic activity so much that the country would topple into a recession.
The Bush administration, which has been pressing the Fed to ease up and keep the economy out of a recession, had nothing but praise for the central bank on Tuesday, with the president's chief economic adviser, Michael Boskin, saying he had "utmost confidence" in the Federal Reserve.
The Fed, as usual, made no announcement of any change in policy, but economists who closely watch its activities said they believed the central bank had eased slightly, based on declines this week in the federal funds rate.
This rate, which is the interest that banks charge each other to make overnight loans, is considered the best early-warning signal of Fed intentions.
The central bank influences the rate through daily decisions about how much money it will make available to the banking system.
The federal funds rate had been averaging between 9.75 percent and 9.88 percent, but it dipped to around 9.63 percent on Monday and dropped further to around 9.56 percent on Tuesday.