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Fed cuts interest rates

For the second time this month, the Federal Reserve cuts interest rates in an attempt to keep the economy from slipping further.

The Federal Reserve decided Wednesday to lower rates for the second time this month, citing signs of a slowing economy.

The federal funds rate has been cut by 50 basis points to 5.5 percent and the discount rate by 50 points to 5 percent, the Fed said in a statement that noted the risks of a deteriorating economy continue to outweigh the chance of rising inflation.

The last time the Federal Reserve cut the discount rate by 1 full point in a month was in 1982. The discount rate is the interest the Federal Reserve charges banks for short-term loans.

The funds rate, the amount banks can charge other banks for loans, was last lowered by 1 point in a month during 1984.

"Consumer and business confidence has eroded further, exacerbated by rising energy costs that continue to drain consumer purchasing power and press on business profit margins," the Fed said in its statement.

The Fed also said that although it maintains its faith that advances in technology and productivity per worker should continue for the long term, it still believes that future risks are weighted toward economic weakness.

In 1999 and 2000, the Fed raised rates six times for a total increase of 1.75 percentage points.

However, recent economic data have indicated that the U.S. economy might be slowing too much, so the Fed cut rates by 50 basis points on Jan. 3, a move that surprised Wall Street and sent the markets soaring.

The Federal Reserve's primary mission is to keep inflation under control, and its main instrument is interest rates. When the Fed senses the economy is growing at a rate that could ignite inflation, it often raises rates.

Rising interest rates make it more costly for businesses to finance expansion plans, putting the brakes on economic growth. Rising rates often result in falling stock prices, however, as corporate earnings are crimped and interest-paying investments become more attractive.

The Federal Reserve's policy-making committee meets again March 20.