Fed Makes Historic Rate Cut

The Federal Reserve slashed its target for a key interest rate to the lowest level on record, down to zero to 0.25 percent. Federal Reserve Chairman Ben Bernanke says the Fed will use "all available tools" to battle against the current financial crisis and prolonged recession.

The rate comes down from the 1 percent target rate that was in effect since the last Federal Reserve meeting in October. Analysts had predicted that the Fed would make a smaller cut of 0.50 percent. Bernanke and other federal regulators are fighting to ensnare the financial crisis that is being called the worst since the Great Depression and a recession that is already the longest in a quarter-century.

This historic low interest rate is a bid to stop the economy's slippery slope of recession of falling consumer prices and a home building slowdown.

Federal Reserve Chairman Ben Bernanke says the Fed isn't running out of ways to fight the financial crisis, and is looking at other tools to revive the economy.

Should prices continue to fall, they may spell economic chaos. This is another reason for the Fed to lower interest rates to fight deflation.

Northern Trust Cuts Staff

Northern Trust Corp. will cut about 4 percent of its workforce, to reduce costs and streamline operations. The Chicago-based custody bank and asset manager says it will cut 450 jobs from its 12,100 member workforce. The expected cuts will reduce costs by about $60 million for the financial services firm, but the company will take a charge of $20 million to $25 million during the fourth quarter to cover severance and benefit costs associated with the job cuts. The company says it will begin cutting jobs after Jan. 1 and will use attrition wherever possible. Bank of America Corp., tool maker Stanley Works and Sara Lee Corp., known for food brands such as Jimmy Dean and Hillshire Farm, also announced job cuts last week.

Manufacturing Slumps, Real Estate Declines

The general economic index from the Fed Bank of New York fell to a negative 25.8, the lowest level since records began in 2001, from minus 25.4 in November. Any reading below zero for the Empire State index is a sign that manufacturing businesses are shrinking. U.S. industrial production decreased 0.6 percent in November, the third drop in four months, says a Fed report.

A Commerce Department report on the housing market shows the pain that it is suffering, the number of housing projects started in November dropped 18.9 percent, the most in 25 years, as builders dramatically slowed production. Annualized housing starts registered only 625,000 in November marking a new all time low, breaking the previous month's record low start.

GM Needs More Money

The federal government may need to lend General Motors at least $30 billion to aid the automaker to operate through a bankruptcy. The consequences of not lending GM the money would mean a systemic chain of failures in the auto industry, say Bank of America analysts in a report issued on Friday.

The Bush administration says it is willing to give emergency aid to the failing automakers. On Friday it said it would help the companies get enough money to stay afloat until Obama's administration and the new Congress enters office in January. The White House may dip into the $700 billion bailout fund to keep the industry from collapsing.

GM would also require $30 billion in debtor-in-possession loans, used to pay for a company's operating expenses during restructuring under bankruptcy protection, this would allow it to continue to operate, and make payments to its suppliers, avoiding the ripple effect if it fails, forcing other companies to close.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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