Federal Bank Slashes Key Interest Rate to Try to Revive the Economy

by Tracie Potts

NBC News

The U.S. and six other nations banned together Wednesday to cut interest rates hoping investors would take the hint buy some stock and pull financial markets out of this slump.

It didn't work at least not immediately.
 
The idea behind the rate cut is this: if it's cheaper for banks to borrow money, it's cheaper for them to lend and loans are what can get this economy moving.
 
The Federal Reserve dropped its key interest rate to one-and-a-half percent.

Six banks around the world followed, all trying to make it easier for banks to lend money.
 
"The financial system is freezing up so I don't think anything would be inflationary right now. I think deflation is what we have to worry about for a while," said Robert McTeer the Former President of the Federal Reserve Bank of Dallas.

European and Asian markets took an awful dive Wednesday morning.

Great Britain is now spending billions to bail out its own banks.

G-7 finance ministers will meet in Washington this weekend to address the problem.

"Governments have and must continue to take individual and collective actions to provide much-needed liquidity, strengthen financial institutions through the provision of capital and protect the savings of our citizens," said Treasury Secretary Henry Paulson.

The housing market, which prompted this meltdown, reports pending sales are up 7.4 percent.

That's good news if all those sales go through.

There's still uncertainty on Wall Street.
 
"I think a lot of us in this city, and on this street in particular, are scratching our heads," said one man.

"Citizens need to look to ourselves and figure out what can we do to be more responsible, and be more responsible for ourselves. We can't look to the government to save us every time," one lady said.

What's next?

A push for guaranteed lending between world banks.

Britain's already done it.

And an effort to suspend what's called "mark to market accounting."

That's a rule requiring U.S. banks to value assets based on what they'd sell for today, not what they cost.
 
France's president called for an emergency G8 Summit.

The White House says it's open to the idea.