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US central bank set to cut rates US central bank set to cut rates
(about 10 hours later)
The US central bank is expected to cut interest rates to 4.25% from 4.5% when Federal Reserve officials meet later.The US central bank is expected to cut interest rates to 4.25% from 4.5% when Federal Reserve officials meet later.
Analysts predict the Fed will cut rates for the third time in 2007 to boost economic growth and ease the impact of the housing crisis and credit crunch.Analysts predict the Fed will cut rates for the third time in 2007 to boost economic growth and ease the impact of the housing crisis and credit crunch.
But a half a percentage point cut is less likely, analysts say, given that more jobs were created in November than had been expected.But a half a percentage point cut is less likely, analysts say, given that more jobs were created in November than had been expected.
The meeting of the Fed will be its final one of the year.The meeting of the Fed will be its final one of the year.
The bank is expected to make its announcement on interest rates at 1915 GMT.The bank is expected to make its announcement on interest rates at 1915 GMT.
Third time?Third time?
The Federal Reserve has cut rates twice already this year.The Federal Reserve has cut rates twice already this year.
On 18 September, the central bank cut interest rates from 5.25% to 4.75%.On 18 September, the central bank cut interest rates from 5.25% to 4.75%.
The first cut in four years, it was aimed at preventing a downturn in the housing market and limiting the impact of the credit crunch.The first cut in four years, it was aimed at preventing a downturn in the housing market and limiting the impact of the credit crunch.
It lowered rates again on 1 November, reducing them to 4.5%.It lowered rates again on 1 November, reducing them to 4.5%.
This loosening of monetary policy has been replicated around the world. In the past week, the Bank of England cut rates from 5.75% to 5.5%, though the European Central Bank decided to keep rates on hold at 4%.This loosening of monetary policy has been replicated around the world. In the past week, the Bank of England cut rates from 5.75% to 5.5%, though the European Central Bank decided to keep rates on hold at 4%.
Mixed dataMixed data
As Federal Reserve officials go into their last meeting of the year, they have a mixed bunch of data to consider. The credit crunch has shaken global stock marketsAs Federal Reserve officials go into their last meeting of the year, they have a mixed bunch of data to consider. The credit crunch has shaken global stock markets
Risks to the economy remain as the global credit crunch continues to batter stock markets, Federal Reserve vice chairman Donald Kohn said last week.Risks to the economy remain as the global credit crunch continues to batter stock markets, Federal Reserve vice chairman Donald Kohn said last week.
"These uncertainties require flexible and pragmatic policymaking - nimble is the adjective I used a few weeks ago," Mr Kohn said."These uncertainties require flexible and pragmatic policymaking - nimble is the adjective I used a few weeks ago," Mr Kohn said.
On 20 November, the central bank trimmed its growth forecast for 2008 to between 1.8% and 2.5% from its June projection of 2.5% to 2.75%On 20 November, the central bank trimmed its growth forecast for 2008 to between 1.8% and 2.5% from its June projection of 2.5% to 2.75%
While the US economy grew by a healthy annualised rate of 4.9% in the third quarter, growth is expected to slow sharply in coming months as a slump in the housing market and financial market turmoil stemming from the credit crunch takes its toll. While the US economy grew by a healthy annualised rate of 4.9% in the third quarter, growth is expected to slow sharply in coming months as a slump in the housing market, and financial market turmoil stemming from the credit crunch, takes their toll.
Lowering rates again should boost consumer and business spending and reduce payments on debt, energising the economy.Lowering rates again should boost consumer and business spending and reduce payments on debt, energising the economy.
But it may create inflationary pressures and further weaken the dollar, already battered by previous rate cuts.But it may create inflationary pressures and further weaken the dollar, already battered by previous rate cuts.
And the high price of oil has already boosted US prices, worrying some of the inflation hawks on the Fed's open market committee.And the high price of oil has already boosted US prices, worrying some of the inflation hawks on the Fed's open market committee.
Bleak picture?Bleak picture?
In recent weeks, a trickle of data has suggested that the economic picture may not be as bleak as originally painted, while a mortgage aid plan announced by President Bush may ease the pressure on the housing market. In recent weeks, a trickle of data has suggested that the economic picture may not be as bleak as originally painted, while a mortgage aid plan announced by President George W Bush may ease the pressure on the housing market.
New orders at US factories unexpectedly rose by 0.5% in October, while US worker productivity was at its strongest in four years in the three months to October.New orders at US factories unexpectedly rose by 0.5% in October, while US worker productivity was at its strongest in four years in the three months to October.
Employers added a net 94,000 jobs last month, the Labor Department said last week, more than analysts had originally expected, though the rate of hiriing was still slower than the previous month. Employers added a net 94,000 jobs last month, the Department of Labor said last week, more than analysts had originally expected, though the rate of hiriing was still slower than the previous month.
"It was certainly healthy enough to put off talk that the economy is careening off the cliff into a recession," said Stephen Stanley, chief economist for RBS Greenwich Capital."It was certainly healthy enough to put off talk that the economy is careening off the cliff into a recession," said Stephen Stanley, chief economist for RBS Greenwich Capital.
Added Global Insight chief US economist Nigel Gault: "In the absence of evidence that the real economy is falling apart, that would argue for the Fed to proceed cautiously with another quarter point." Global Insight chief US economist Nigel Gault said: "In the absence of evidence that the real economy is falling apart, that would argue for the Fed to proceed cautiously with another quarter point."