NewsFlashUS Fed chops interest rate a half-point

30 January 2008 19:38  [Source: ICIS news]

WASHINGTON (ICIS news)--The Fed cut its key federal funds interest rate on Wednesday by 50 basis points to 3%, saying that financial markets remain under considerable stress and that downside risks to economic growth continue.

 

The rate reduction was widely anticipated and came only a week after the Federal Reserve Board - the US central bank - had reduced the federal funds rate by a rare three-quarters point cut.

 

It is the lowest federal funds interest rate since the second quarter of 2005.

 

The bank’s rate-setting Federal Open Markets Committee (FOMC) said in a statement that the rate cut was needed also because credit has tightened further for some businesses and households.

 

“Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labour markets,” the Fed said.

 

The central bank also indicated that despite persistent high energy costs and recent increases in US food prices, it apparently does not see inflation as a looming risk to the economy.

 

“The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully,” the bank said.

 

The statement said that Wednesday’s half-point rate cut, “combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity”. 

 

“However, downside risks to growth remain,” the bank cautioned, suggesting that the Fed may ease interest rates still further at its next committee meeting on 18 March. 

 

“The Committee 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,” the statement said.

 

The Fed also approved a 50-basis-point decrease in the discount rate to 3.5%.

By: Joe Kamalick
+1 713 525 2653

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