Federal Reserve announced Tuesday

The Federal Reserve announced Tuesday that it has cut the target for its key federal funds rate to a range of 0 to 0.25 percent, down from 1 percent set back in October.

The federal funds rate is the interest rate banks charge each other. The new target range puts the rate at its lowest level on record.

In the Fed's policy statement, Chairman Bernanke said the committee will use all available tools in order to contain the financial crisis.

The statement also said "weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

The outlook for economic activity has weakened further since the Fed's last meeting. Labor markets, consumer spending and business investment all showed declining trends, according to the Fed.

Going forward the Fed will focus on supporting the function of financial markets and aim to stimulate the economy through open market operations.

The Fed said it will continue to purchase large amounts or agency debt and mortgage-backed securities.

The committee also approved a 75 basis point cut in the discount rate to .50 percent.

All changes made by the Fed committee on Tuesday were unanimously approved by the 12 Fed governors.

U.S. markets moved higher on the announcement while yields on 10 year and 30 year Treasury bonds fell.