The Federal Reserve slashed a key US interest rate by three-quarters of a
percentage point , a substantial cut but smaller than
many in financial markets had expected, as part of an effort to
hold off a deep recession and financial meltdown.
The Fed's action, taken on an 8-2 vote of its policy
committee, took the bellwether federal funds rate down to 2.25
per cent, the lowest since February 2005. Financial markets had
largely priced in a full point reduction.
"Financial markets remain under considerable stress, and
the tightening of credit conditions and the deepening of the
housing contraction are likely to weigh on economic growth over
the next few quarters," the central bank said in a statement
outlining its decision.
The Fed also said downside risks to economic growth
remained even in the wake of the rate cut, suggesting an
openness to a further lowering of borrowing costs if needed.
"The committee expects inflation to moderate in coming
quarters, reflecting a projected leveling out of energy and
other commodity prices and an easing of pressures on resource
utilization," the Fed said.
US stock markets trimmed earlier gains on the
smaller-than-expected rate cut, but were still up sharply.
Prices for short-term government debt extended losses and the
dollar pared earlier gains against the Japanese yen.
"The Fed has shown that they are focused on getting the
economy back on its feet first and foremost, and they will
worry about inflation later," said K. Daniel Libby, senior
portfolio manager at Sands Brothers Select Access Fund in
Greenwich, Connecticut.