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Tuesday 14th of October 2008

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January 31, 2008

Federal Reserve cuts rates

by Richard Kilner

Story link: Federal Reserve cuts rates

Yesterday the Federal Reserve cut interest rates again, this time by 50 basis points to 3%.

It is the second cut in just eight days, which have seen the interest rate cut by a total of 1.25% in a little over a week.

The cuts have been seen by some as chairman Ben Bernanke proving his decisiveness, and others as a worrying indicator that the US economy could be on the edge of a recession, if not already in one.

Following the half point cut the Dow Jones soared by 200 points, only to finish the day marginally down.

The slashing of rates is intended to stimulate economic activity by encouraging individuals and businesses to borrow more.

Some consider the massive cut of 1.25% in eight days as a strong sign of panic hitting the Federal Reserve, and there is no comparable economic action in recent times.

Forecasts are that the rate will continue to fall, with some predicting it could reach just 2% by March-April this year.

In the last three months of last year the US economy had a miniscule growth rate of 0.6%, and there are fears it could fall into the red for the present quarter.

 

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