U.S. interest rates slashed by 75 basis points

Taiwan's News.Net
Tuesday 22nd January, 2008

The U.S. Federal Reserve has announced a stunning 75 basis points reduction in official interest rates.

The announcement Tuesday came amidst a dramatic sell-off in world stock markets which was gathering pace, primarily over fears the U.S. economy was heading for recession. The Fed was not expected to discuss interest rates until the Open Market Committee meeting next Tuesday and Wednesday.

In an effort to stimulate the economy and starve off a recession, the Fed initiated its biggest rate cut in more than two decades. The official rate moved from 4.25% to 3.50%.

”The Federal Open Market Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth,' the Fed announcement said.

“While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.'

“Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labour markets,” the Federal Reserve statement said.

Immediately the cut was announced analysts were betting another cut would follow at the Open Market Committee next week, with some forecasting another 25 basis points reduction, while others thought the cut would be up to 50 basis points.

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