The announced cut was deeper than expected.

The Fed announced Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25 percent to 4.75 percent. The half-point reduction was double the quarter-point move that many economists had been expecting.

The action was designed to boost economic growth by lowering borrowing costs for millions of consumers and businesses. Commercial banks were expected to quickly match the Fed’s action by cutting their prime lending rate. The prime rate has been at 8.25 percent for the past 15 months.

Wall Street responded positively:

A jubilant Wall Street barreled higher Wednesday after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half a percentage point. The Dow Jones industrial average surged more than 250 points after the Fed announced its move.

[...]

The central bank’s decision and the wording of its accompanying economic assessment gratified a market that plunged during August amid fears that credit market problems, spawned by a continuum of mortgage defaults, would send the economy toward recession.

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