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| US rates slashed to nearly zero | |
| (20 minutes later) | |
| The US Federal Reserve has slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession. | The US Federal Reserve has slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession. |
| In its statement, the Federal Reserve warned that "the outlook for economic activity has weakened further". | In its statement, the Federal Reserve warned that "the outlook for economic activity has weakened further". |
| It predicted that rates would stay at the current exceptionally low levels "for some time". | It predicted that rates would stay at the current exceptionally low levels "for some time". |
| It added that it was considering ways it could spend money on supporting the economy and credit markets. | It added that it was considering ways it could spend money on supporting the economy and credit markets. |
| The Federal Reserve is already injecting billions of dollars into the banking system as well as buying debt based on home loans. | The Federal Reserve is already injecting billions of dollars into the banking system as well as buying debt based on home loans. |
| Analysts were looking for indications of what policymakers plan to do now that they cannot cut interest rates any further. | Analysts were looking for indications of what policymakers plan to do now that they cannot cut interest rates any further. |
| Postpone purchases | |
| The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds. | The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds. |
| The strategy of a central bank buying government bonds mirrors the so-called quantitative easing carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s. | |
| Deflation becomes more of a risk as interest rates approach zero. | |
| It is a serious problem for an economy because people postpone making any large purchases as they believe prices are going to fall, which stifles economic activity even further. | |
| The rate has been cut drastically by the Federal Reserve from the 5.25% where it stood in September 2007. | The rate has been cut drastically by the Federal Reserve from the 5.25% where it stood in September 2007. |
| Luke-warm reception | Luke-warm reception |
| It is the lowest the central bank's key rate - the target rate for banks to charge to lend to each other overnight - has been since records began in 1954. | |
| The decision received a luke-warm reception from the stock market, with the Dow Jones Industrial Average rising from 8,684 just before the decision to 8,740 about half an hour after it, which is a rise of just 56 points. | The decision received a luke-warm reception from the stock market, with the Dow Jones Industrial Average rising from 8,684 just before the decision to 8,740 about half an hour after it, which is a rise of just 56 points. |
| "You've seen the dollar weaken because it was a larger than expected cut - the dollar is falling against all major currencies," said Matt Esteve at Tempus Consulting in Washington. | "You've seen the dollar weaken because it was a larger than expected cut - the dollar is falling against all major currencies," said Matt Esteve at Tempus Consulting in Washington. |
| "On one side, we effectively have a zero interest rate in the US - on the other side, the Fed has sent a sign that they are ready to use all tools to help the US economy out of recession." | "On one side, we effectively have a zero interest rate in the US - on the other side, the Fed has sent a sign that they are ready to use all tools to help the US economy out of recession." |
| Earlier in the day, official data confirmed that the threat of inflation is receding, as consumer prices fell a record 1.7% in November. | Earlier in the day, official data confirmed that the threat of inflation is receding, as consumer prices fell a record 1.7% in November. |