The Fed cut its target on federal funds, the overnight interbank loans that form the floor rate for U.S. lending, to just 0.25%, down 75 basis points from the previous 1.0% level.

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In mid-August the Fed supplied enough liquidity to hold the effective federal funds rate, an overnight interbank rate, below its then target of 5.25%.

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Reason: The Federal Reserve's easy money means that funds for overnight lending aren't worth anything.

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The central bank's monetary policy targets the federal-funds rate, which banks charge each other on overnight loans.

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The target for the federal-funds rate, at which banks lend to each other overnight, has been between zero and 0.25% since December 2008.

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The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.

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Last month the Fed cut the federal funds rate (applied to money that banks lend to each other overnight to meet reserve requirements) by 1.25 percentage points, to 3%, in just eight days--the biggest one-month reduction in 25 years.

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The federal funds rate is what U.S. banks charge one another on overnight loans.

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The target for federal funds rate, which is the rate banks charge each other to borrow funds overnight, is already near zero.

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Trading in federal funds futures indicated an 84.0% chance that the central bank would cut its overnight rate target to 1.25% on Oct. 29, following its half-point reduction on Wednesday.

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