California Business Minute™

Hi, I am Tim Johnson and welcome to the California Business Minute.

The Federal Reserve, urgently rewriting its playbook to fight a deepening recession, cut its
benchmark interest rate to as low as zero. The Fed's action was unprecedented in the central
bank's 95-year history.

For the first time, the Fed created a target range for its funds rate, putting it at zero to 0.25
percent. That was a dramatic reduction from the previous rate, which was at an already low
1 percent.

The radical action underscores the breathtaking deterioration in the U.S. economy and the
stability of the financial system this fall and even since Fed policymakers last gathered in
late October. Yet, before the Fed announcement, information was released about housing
starts for November, plunging by almost 19 percent, the most in a quarter-century. And
consumer prices fell by a record 1.7 percent in November, the second straight monthly
decline, raising fears the nation is in a dangerous bout of deflation.

With the Fed's key rate sinking to near zero, the central bank moved into uncharted territory.
Still, Fed Chairman Ben Bernanke insisted the central bank isn't running out of ammunition to
fight the crisis. "The Fed will employ all available tools to promote the resumption of sustainable
economic growth," said Bernanke.

Since the start of the recession, the economy has shed nearly 2 million jobs. Analysts predict
3 million more will be lost between now and the spring of 2010. The recession is shaping up to
be the longest since the Great Depression.

Still, some economists say there are two problems that lower rates don't address: the reluctance
of people worried about their jobs to take on more debt, even at low rates, and the unwillingness
of banks to lend to some people who do want to borrow.

I am Tim Johnson and this has been the California Business Minute.