Fed Trims Interest Rate

Banks respond by dropping benchmark lending rates for small businesses to a two-year low.

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The Federal Reserve on Tuesday trimmed interest rates by a quarter point to 4.25 percent, the third cut since September.

The cuts were aimed at limiting the economic fallout of a downturn in the housing and mortgage markets, Fed officials said.

The move prompted commercial banks to drop prime lending rates for consumer and small-business loans to 7.25 percent, the lowest level in two years.

The latest round of interest rate cuts have led many small-business owners to put hiring and spending plans on hold, according to the National Federation of Independent Business, a Washington-based lobby group with more than 600,000 members.

"The logical response was to cut hiring, capital spending and other growth-related activities," William Dunkelberg, the group's chief economist, said in a statement. "And indeed that occurred in the last 12 days of September and continued into October and November."

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