The US Federal Reserve decided Wednesday to cut a key interest
rate by an additional half percentage point to 3.0 percent in order
to prevent the economy from slipping into recession.
The Wednesday action, the fourth straight move since September
18 last year, came eight days after the central bank had lowered
the federal funds rate, which commercial banks charge each other on
overnight loans, by 0.75 percentage point to 3.5 percent.
The 0.75-percentage-point cut was the biggest rate reduction
since October 1984. The key interest rate has been cut by a
combined 2.25 percentage points in the four actions.
The Fed decision on Wednesday had been expected by Wall Street.
In the minutes just after the Fed decision, the Dow Jones
industrial average jumped 76.33, or 0.61 percent, to 12,556.63,
after rising 273 over Monday and Tuesday.
"Financial markets remain under considerable stress, and credit
has tightened further for some businesses and households," the Fed
explained in a statement announcing the decision.
Moreover, recent information indicates a deepening of the
housing contraction as well as some softening in labor markets, it
said.
In a related action, the Fed approved a half percentage point
decrease in the discount rate, the interest rate that the Fed
charges to make direct loans to banks, to 3.50 percent.
"Today's policy action, combined with those taken earlier,
should help to promote moderate growth over time and to mitigate
the risks to economic activity," the Fed said.
However, "downside risks to growth remain," it noted. And it
expected inflation to moderate in coming quarters.
The Fed will continue to assess the effects of financial and
other developments on economic prospects and will "act in a timely
manner as needed" to address those risks, it said.
The latest rate cut followed news that the US economic growth
had slowed to an annual pace of just 0.6 percent in the final
quarter of last year, down significantly from a 4.9 percent rate in
the prior three months.
The barely discernible quarterly growth came amid increased
concern about a possible recession.
As a result of the Wednesday decision, commercial banks' prime
lending rate, the benchmark for millions of consumer and business
loans, will drop by a corresponding amount to 6.0 percent, the
lowest point since the spring of 2005.
The prime rate responds to changes in the federal funds
rate.
By lowering interest rates, the Fed hopes that consumers and
businesses are encouraged to boost their spending and investment,
helping bolster the economic growth.
(Xinhua News Agency January 31, 2008)
