Fed cuts to starve off deflationary threat
The US Federal Reserve has cut the cost of borrowing by a further 25-basis points, taking interest rates to a 45-year low.
The decision by Federal Open Market Committee, led by Alan Greenspan, was taken to revitalise the sagging performance of the US economy and to reduce the threat of deflationary pressure.
Most FOMC members concurred with the move though there was a dissenting voice. San Francisco Fed president Robert Parry argued for a half-point cut.
It is the 13th rate cut in the last three years. The base rate now stands at 1 per cent – the lowest since 1958. The cut was forecasted by most analysts.
In a statement the Fed said: The committee continues to believe an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity,
“Recent signs point to a firming in spending, markedly improved financial conditions, and labor and product markets that are stabilizing. The economy, nonetheless, has yet to exhibit sustainable growth.”
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Some see the Fed moving to cut more to stimulate consumer spending in the world’s biggest economy, which presently toils with downbeat growth expectations.
Analysts also will turn to other economies and project the UK Bank of England’s Monetary Policy Committee and European Central Bank may follow suit and cut rates.
