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)
