The Federal Reserve has slashed US interest rates by 75 basis points to 2.25% as the economy struggles to sidestep a recession.
In a move to fight further market turmoil, the Federal Open Market Committee (FOMC) voted eight to two for the latest rate cut, the fifth drop since mid-September 2007.
Some analysts had predicted the Fed would cut rates by as much as 100 basis points to 2%, in order to revive the ailing economy.
“Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labour markets have softened,” the FOMC statement reads.
“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.”
Federal Reserve Bank of Dallas President Richard Fisher and his Philadelphia counterpart Charles Plosser voted against the 75 basis point drop, wanting “less aggressive action”.
However, the Board of Governors unanimously approved a 75 basis point cut to the bank borrowing or discount rate, to 2.5% percent. Fed chairman Ben Bernanke made an emergency 0.25% cut to the discount rate over the weekend, amid the Bear Stearns struggles.
“Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity,” the FOMC says. “However, downside risks to growth remain.”
Earlier today, US Treasury Secretary Henry Paulson admitted the US economy faces a "sharp decline", but avoided to use the ‘recession’ word.
“There is no doubt that the American people know that the economy has turned down sharply. So to me, much less important is the label that is placed on it today. Much more important is what we do about it," Paulson told US breakfast television.
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