Federal Reserve Lowers Lending Rate

THE Federal Reserve Board cut the key discount lending rate to its lowest level since 1987, trying to pull the US economy out of a recession. The action left the rate, which the central bank charges banks for short-term loans, at 5.5 percent, down from 6 percent, and raised the prospect the banks would lower loan costs to businesses and consumers.

Shortly after the announcement, Southwest Bank of St. Louis, which often acts as a bellwether, said it would drop its prime lending rate to 8.75 percent from 9 percent yesterday.

Several major banks said they had no immediate plans to follow suit. The prime is the rate banks charge their best business customers. Many other rates, such as those on home-equity loans and consumer loans, are tied to it.

The White House cheered the Fed's move; President Bush had been prodding the Fed and America's key trading allies, such as Germany and Japan, to lower interest rates and get world economic growth back on track.

Fed Chairman Alan Greenspan said lower rates should provide a foundation for more lending and growth. But he said it was too soon to say whether the biggest banks will lower their primes.

The Fed said it took the action "in light of continued weakness in economic activity, especially in the industrial and capital goods areas, and evidence of abating inflationary pressures."

Shortly after the Fed announced its decision, the government reported that orders for manufactured goods fell for the fifth straight month. Declining sales and rising unemployment have led some economists to believe that the recession will last longer than earlier predicted.