The new policy affects the so-called federal funds rate, the interest rate charged between banks for overnight loans.
The move to lower rates is aimed at stimulating economic growth to help pull the nation's economy out of a recession.
The rate most recently was 1 percent.
In knocking down the key rate after two days of meetings, the Fed's Board of Governors issued a statement saying it's concerned about continued weak economic activity.
The Fed noted that labor market conditions continue to deteriorate, and business spending and industrial production is still declining.
The Fed added that inflation has diminished, due mainly to the falling cost of energy.