WORLD> America
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WORLD> America
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US Fed cuts rates by half point to combat crisis
(Agencies)
Updated: 2008-10-30 06:39 AGGRESSIVE MOVES The US central bank has cut benchmark overnight rates from 5.25 percent in nine steps over the past 13 months to counter a financial crisis that started with the collapse of the US mortgage market and spread around the world. China also lowered interest rates on Wednesday, and the Bank of Japan, European Central Bank and Bank of England are all expected to follow suit in coming days. Shortly after announcing its decision, the Fed said it had approved currency swap lines with central banks in Brazil, Mexico, South Korea and Singapore to help those countries combat the credit crunch by ensuring they had access to US dollars. It now has swap lines with 13 central banks. In addition to cutting the overnight federal funds rate, the US central bank trimmed the discount rate it charges banks for overnight loans to 1.25 percent from 1.75 percent. US banks began to lower the prime rate they charge their best customers to 4.0 percent from 4.5 percent after the Fed's announcement. While the Fed's steps to alleviate credit market strains have begun to bear some fruit, US businesses and consumers looking ahead see an increasingly gloomy outlook. The US labor market has shed jobs for nine consecutive months, industrial production has tumbled and consumer confidence has hit a record low. Economists expect a report on gross domestic product on Thursday to show the US economy contracted at an annualized 0.5 percent rate in the third quarter, and many expect GDP to continue to shrink into next year. "The expectation is (for) a long and deep recession in the US that will extend through most of 2009," Allen Sinai, chief economist for Decision Economics, told a conference on Monday.
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