On Tuesday the Federal Reserve cut the Funds interest rates - the rate that banks charge each other - by three-fourths of a percentage point as it took assertive action to stem the credit crisis that is threatening to push the country into a severe recession.

This recent cut brings the federal funds rate down to 2.25 percent, the lowest point since late 2004 and is the second cut of three-fourths of a percentage point this year. The first occurred at an emergency meeting on Jan. 22 and was followed by a half-point cut at a regular meeting of the Federal Reserve on Jan. 30. In fact, the funds rate has been cut by the U.S. central bank six times since last September. The reductions became more aggressive since January with the global financial market becoming increasingly restless as the U.S. economy sputters.

Unlike other rate cuts by the Feds, this one was not unanimous, as it was reported hat two members of the committee responsible for approving the cut voted against it, arguing that they would prefer a smaller rate cut. However, according to AP reports the Fed Reserve justified the sharp reduction by saying it had to navigate a difficult policy environment that included sluggish economic activity and rising inflation pressures, and that the outlook for the national economic activity has weakened further.

The reports further stated that the central bank stands ready to cut rates further if necessary, claiming that there are downside risks to growth that still exists. The Fed Reserve Chairman Ben Bernanke and other Fed officials have said in the recent past that they view the threat of economic weakness as a bigger risk inflation given the risks to international financial markets.

The reduction in the funds rate are designed to lower borrowing costs and boost spending by consumers and businesses and thus increase economic activity which has slowed dramatically since the start of the year. This is characterized by a prolonged credit squeeze, worsening housing market, rising unemployment and oil prices.

Following the announcement of the reduction in the funds rate, commercial banks announced a cut in their prime lending rate from 6 to 5.25 percent, which should be a boost for business and consumer loans, including adjustable rate mortgages.