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Read more with google mobile : Fed cuts rate to 1.0 percent in latest move to ease crisis

Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Secondary Navigation Top Stories Full Coverage Most Popular Photos Search Search: Fed cuts rate to 1.0 percent in latest move to ease crisis AFP - Thursday, October 30 WASHINGTON (AFP) - - The US Federal Reserve cut its key lending rate a half point Wednesday to match a historic low of 1.0 percent in the latest action to ease a credit crisis that is strangling the US economy. Analysts said the Fed action and an unusually bleak assessment suggests the Fed could trim rates even more to revive growth and stave off a deflation threat. The cut in the federal funds rate, which impacts a number of other borrowing rates, followed an emergency half-point cut October 8 coordinated with other central banks to help fight a worldwide credit crunch. "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," said the Federal Open Market Committee (FOMC) headed by chairman Ben Bernanke after the unanimous decision widely expected by financial markets. The statement added that "downside risks to growth remain" for the world's biggest economy. Some analysts said the glum tone of the statement suggested the Fed could cut rates further despite potential dangers of lowering its base rate below 1.0 percent -- the level in 2003 and 2004 that likely fueled the US housing boom-and-bust cycle. The statement "opens the door to more easing if incoming data continue to deteriorate," said Aaron Smith, analyst at Moody's Economy.com, predicting the first move below 1.0 percent since the federal funds rate was begun in 1954, Cary Leahey, senior economist at Decision Economics, said the FOMC "was reluctant to lower rates further than 1.0 percent but they did say that downside risks remain." This suggests "they want to wait till the next meeting before cutting again," he said. "The Fed doesn't want to be caught in a trap of leaving rates too low too long," Leahey added. "There is also a feeling they want to keep their powder dry." Ian Shepherdson, chief US economist at High Frequency Economics, said the FOMC produced "a very downbeat statement, with all mention of upside inflation risks expunged from the record." "The door is open to further easing, with the FOMC stating baldly that 'downside risks to growth remain,' ... we view this as the first entirely realistic assessment from the Fed in this whole cycle. We expect another 50 basis-point cut on December 16." In 2003 and 2004, the Fed did not go below 1.0 percent amid concerns about how low rates could hurt small investors and money market funds. But Peter Kretzmer, senior economist at Bank of America, pointed out that the latest statement "said nothing that would indicate technical issues preventing it from lowering rates further." "We anticipate that the FOMC will move its target funds rate to 0.75 percent, most likely by the end of the year," Kretzmer said. The FOMC said, "Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for US exports." It added that "the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit." The statement said the range of actions by the Fed and other banks to help get credit flowing "should help over time to improve credit conditions and promote a return to moderate economic growth." The cuts marked the latest in a series of moves by the Fed to ease a credit crunch stemming from a collapse of the subprime US property market. The year began with the key rate at 5.25 percent. The benchmark federal funds rate for overnight interbank loans can influence a number of other types of lending including business loans based on commercial banks' "prime rate." But the cuts in the funds rate have failed to bring down other key rates including those of mortgages which are tied to bonds and in some cases the LIBOR rate used for most interbank funding. Some analysts say the Fed's efforts to pump more liquidity into the banking system may help bring down these rates and that it could start buying long-term bonds to influence those rates. Brian Bethune, economist at IHS Global Insight, said the Fed will remain aggressive in battling the credit crunch. "It is clear that the Fed has moved from a defensive, case-by-case crisis management approach in the summer months to an offensive and comprehensive attack on the deflationary forces in the economy," he said. Email Story IM Story Printable View Blog This Recommend this article Average (0 votes) Sign in to recommend this article » Most Recommended Stories » Enlarge Photo The US Federal Reserve building is seen in Washington, DC. The US Federal Reserve cuts its key lending rate half a point Wednesday to 1.0 percent in the latest move to ease a credit crisis that is strangling the US economy. 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