Federal Reserve cuts US interest rates to three per cent

30-01-2008

Federal Reserve cuts US interest rates to three per cent
The Federal Reserve has cut interest rates by half a point to three per cent as it attempts to stave off recession in the United States economy.

The move comes eight days after heavy losses on global exchanges forced the Fed to make an unscheduled 0.75 per cent cut from 4.25 per cent.

Fears of a US recession were heightened earlier today when the US government revealed gross domestic product (GDP) grew by just 0.6 per cent in the final quarter of 2007, less than economists' expectations.

A statement from the Federal open markets committee said: "Financial markets remain under considerable stress, and 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."

Analysts had argued a quarter-point hike previously viewed as a possibility would not have been sufficient to shore up flagging market sentiment.

Today's move will "promote moderate growth over time", the statement adds, before acknowledging that "downside risks to growth remain".

It states it remains prepared to act "in a timely manner" as circumstances require, a phrase analysts are interpreting as a statement of intent over potential future unscheduled rate cuts.

Nine of the committee's ten members approved the half-point cut. Richard Fisher preferred to hold rates at 3.5 per cent.

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