According to this FT article, the Fed has cut interest rates to near zero in an attempt to stimulate investment and protect the economy from a much-feared deflation. They announced that interest rates would now be fixed between 0 and .25 percent, the "lowest the rates can go." As a result, US stocks and Treasury bonds 'surged' but the dollar weakened against the euro and the yen. The Fed also assured the public that it was prepared to improve economic conditions (or prevent them from worsening further) with a large quantity of reserves and by promoting the purchasing of longer-term securities.
The situation here is similar to Japan in the 90s, when they experienced a 0% interest rate and threat of deflation. However, it is good that the Fed is trying to boost consumer confidence. And by setting a limited range of interest rate fluctuations, maybe it will encourage investors who are expecting the interest rates to drop further to realize that it can't go much lower, and they might as well take advantage of rates now.
This article shows the limitations of monetary policy now. I agree with Obama's statement that the US is in need of a "big fiscal stimulus." If the interest rates hit zero with no major improvement in sight, it may be the only other option.
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