Written by Jeff Thredgold, CSP, President, Thredgold Economic Associates

As expected, the Federal Reserve today trimmed its key interest rate, the federal funds rate, by 0.25% from 2.25% to 2.00%. The Fed has cut the rate by 3.25% in seven moves since September 18, 2007.

The following are three key paragraphs from the Fed’s accompanying statement:

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Most market players expect the Fed to now move to the sidelines through the end of the year, with the federal funds rate holding steady at 2.00%.

Reprinted with permission from the "Tea Leaf" by Jeff Thredgold. Copyright, 2008, Thredgold Economic Associates, LLC. To subscribe to Jeff's free weekly email update, visit www.thredgold.com.