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Interest rates cut to spur economy
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THE US Federal Reserve on Wednesday cut its key interest rates by half a percentage point in an effort to avert an economic recession.
After two days of closed-door meeting, the Fed's decision-making Federal Open Market Committee (FOMC) announced that it reduced the federal fund rate, the interest commercial banks charge each other on overnight loans, by half a percentage point to 5.5 per cent. The Fed also cut its discount rate to five per cent.
The Fed on January 3, in a surprise move between regularly scheduled meetings, cut the funds rate and discount rate by half a percentage point respectively.
“Consumer and business confidence has eroded further, exacerbated by rising energy costs that continue to drain consumer purchasing power and press on business profit margins," the Fed said in a statement.
It also cited weaker retail sales and business spending on capital equipment as well as overstocked inventories.
“Taken together, and with inflation contained, these circumstances have called for a rapid and forceful response of monetary policy," the Fed said.
The Commerce Department earlier on Wednesday said the US economy increased at an annual rate of just 1.4 per cent in the fourth quarter of 2000, the slowest pace in more than five years.
Fed Chairman Alan Greenspan last week warned that the economic growth is probably “very close to zero" in the current quarter.
In its statement, the Fed said it still views excessive weakness as the main risk to the US economy, suggesting it remains open to further rate cuts should the economy continue to deteriorate. The FOMC next meets on March 20.
The Fed's easing action was quickly followed by announcements from Bank One and Bank of America that they were reducing their prime lending rate by a similar half point, from nine per cent to 8.50 per cent, effective yesterday. Other commercial banks were also expected to follow. (Xinhua)
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