U.S. Fed cuts rates by half point

The Federal Reserve cut U.S. its benchmark interest rates by a half-percentage point on Wednesday to try to stave off a prolonged recession, and left the door open to further reductions if needed.

The Fed's unanimous decision takes its target for overnight bank lending to 1.0 percent, the lowest since June 2004. Wall Street was united believing the Fed would lower rates, although views were split on the likely size of the move.

"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the Fed said. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending."

The Fed also toned down its language on inflation, saying only that it expected it to moderate in coming quarters. After an emergency interest rate cut earlier this month, coorindated with other major central banks, the Fed had suggested it still saw some risk inflation could flare.

"The Fed appears to have buried its upside inflation risks," Michael Gregory, an economist with BMO Capital Markets in Toronto, wrote to clients. "Bottom line: No upside inflation risk + persistent downside growth risk = a policy bias to ease further."

The U.S. 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 U.S. mortgage market and spread around the world.

Fears of an acute recession have pushed U.S. stock prices down to five year lows this month, although equities enjoyed a large rally Monday, and rose again on Tuesday after the Fed move, before ending little changed.

The U.S. dollar was sharply lower against the euro late on Wednesday and U.S. government bonds yields were marginally higher.