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The Federal Reserve cut its key lending rate by ¾ of a percent to 2.25%. The latest slash of the interest rate continues the Fed’s aggressive decrease in the lending rate from 5.25% last October.

The United States economy has been hit by a series of shocks. There has been a profound decrease in housing, a decrease in economic activity and a credit crunch affecting investment banks. The combination of factors has contributed to widespread decrease in retail sales, job hiring and stock market prices. The Fed is decreasing rates in an effort to offset these factors and increase economic growth.

Ben Bernanke, chairman of the Federal Reserve, announced in the Fed policy statement that the outlook for economic activity has weakened and they are on watch for further weakness. The Fed also indicated that inflationary pressures are a concern. Two federal reserve governors dissented from the decision arguing for less aggressive action. It is unusual to find dissent in Federal Reserve decisions.

Some analysts believe the Federal Reserve is near the end of the rate cutting process. Having the Federal Funds rate below the 2% level caused some of the problem excessive credit expansion that is now causing problems with defaults. Such a low Funds rate also can lead to inflation through a weaker dollar. Signs of inflation are evident in many grains, such as corn and wheat, which are at multi year highs. Other commodities which are inflating in price are gold now over $1000 an ounce, and oil over $100 a barrel.

The Federal Reserve is hoping that the low funds rate will encourage lenders to provide lower mortgage rates to homeowners. Lower home mortgage rates can help offset the housing crises by enabling borrowers to refinance their loan making home ownership costs lower.