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WASHINGTON, DC-It was widely expected the Federal Reserve Bank would cut its benchmark rate yesterday; the only question was by how much. 25 basis points? 50? Even a full percentage point was not completely out of the realm of possibility. The Federal Reserve Bank, true to form, took the middle road and dropped the target for the Federal Funds rate down to 1% from 1.5%. It also lowered the discount rate a half point to 1.25%.

It did not mince words in explaining its actions–although few required one. “Downside risks to growth remain,” the Federal Open Market Committee said in a statement. “Recent policy actions, including today’s rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.”

The Federal Reserve Bank last cut its key lending rate on Oct. 8 in a surprise coordinated effort with the European Central Banks, as well as China and the central banks in Britain, Canada, Sweden and Switzerland. These moves have been only one strategy that Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson have made to combat the credit crisis. The other major initiative, of course, has been the $700 billion rescue plan, enacted earlier this month.

By now so much money has been thrown at the credit log jam, both here and abroad, it is difficult to say whether one initiative–that is, Wednesday’s interest rate cut–will have an impact on real estate lending. It is good news for borrowers whose loans may be tied to the prime rate, Cassidy & Pinkard Colliers’s David Webb tells GlobeSt.com. “But overall this will not have an immediate impact on credit or real estate lending. The problem is not so much the cost of funds as the lack of funds.”

That said, there are welcome signs that the coordinated, multi-agency financial system rescue is loosening some credit. Libor has been dropping for more than two weeks, save for a few small spikes in the last few days. Also, Webb notes, commercial paper flows have been improving as well. “Let’s see how Libor reacts to the rate cut before we start to celebrate,” he says.

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