US Federal reserve cuts key rate by 0.25 percent

May 1st, 2008 - 3:43 am ICT by admin  

DPA
Washington, May 1 (DPA) The US Federal Reserve slashed its benchmark interest rate by 0.25 percentage points Wednesday to two percent, the lowest level since November 2004, amid continuing concerns of an economic downturn in the US. The central bank’s cut came after the government reported US growth at an annual rate of 0.6 percent in the first quarter of 2008, higher than the contraction expected by some economists but still a sign that the world’s largest economy has slowed drastically.

“Recent information indicates that economic activity remains weak,” the Fed Open Market Committee said in a statement explaining its decision, which had been predicted by most economists.

The Fed said its “substantial” cuts in the federal funds rate should help improve the future performance of the economy. The central bank has now cut rates by 2.25 percentage points since September in an effort to keep the US economy out of recession.

The board gave no clear indication if this would be its last rate cut, saying it would watch future growth figures but also warning of “uncertainty” in the outlook for inflation.

“It will be necessary to continue to monitor inflation developments carefully,” the board said, but added that it expected price risks to moderate through 2008.

The Fed said falling consumer and business spending as well as higher unemployment have all weighed on the economy. The ongoing housing and financial crisis, as well as the resulting tightening of the credit conditions in the US, are “likely to weigh on economic growth over the next few quarters.”

The Fed also cut its discount lending rate to banks by a quarter- point to 2.25 percent.
DPA

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