US Fed cuts rate to 1.5%, hints at maybe more

08 October 2008 12:48  [Source: ICIS news]

WASHINGTON (ICIS news)--The US Federal Reserve on Wednesday lowered its key federal funds interest rate by 50 basis points to 1.5%, saying that the “recent intensification of the financial crisis” warranted the rate cut.

 

The Fed, the US central bank, said the rate reduction was being made in conjunction with similar rate cuts by central banks in Canada, the UK, Switzerland, Sweden and by the European Central Bank.

 

The joint action by central banks came as markets in Asia and Europe continued to nose dive.

 

Fed Chairman Ben Bernanke hinted broadly on Tuesday that the bank would make an additional cut in its rates. The federal funds rate has been at 2% since April.

 

In announcing the rate cut early on Wednesday before US markets opened, the Fed said that “Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months”. 

 

“Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit,” the central bank said.

 

The rate reduction follows an unprecedented move by the Fed on Tuesday to restore liquidity to the commercial paper market in the US by establishing a special fund to allow private, non-bank companies to obtain short-term Fed loans for operational needs.

 

The Fed also indicated that it is prepared to reduce US interest rates still further, saying that it will continue to “monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability”.

 

The central bank's next scheduled rate-setting meeting is on 28-29 October.

 

($1 = €0.74)

 

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By: Joe Kamalick
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