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| Version 1 | Version 2 |
|---|---|
| US rates reduced for third time | US rates reduced for third time |
| (about 1 hour later) | |
| The US Federal Reserve has cut interest rates from 4.5% to 4.25% in a bid to help the world's largest economy through a housing and credit woes. | The US Federal Reserve has cut interest rates from 4.5% to 4.25% in a bid to help the world's largest economy through a housing and credit woes. |
| It is the third rate cut in the US in as many months, leaving US rates 1% lower than their August peak. | It is the third rate cut in the US in as many months, leaving US rates 1% lower than their August peak. |
| A downward move had been expected, but US shares fell because some traders had hoped for a more aggressive rate cut. | A downward move had been expected, but US shares fell because some traders had hoped for a more aggressive rate cut. |
| The Fed also trimmed the rate at which it lends money to banks to help smooth out problems in the credit markets. | The Fed also trimmed the rate at which it lends money to banks to help smooth out problems in the credit markets. |
| The Fed reduced its primary discount rate from 5% to 4.75% to encourage banks to borrow from it. | The Fed reduced its primary discount rate from 5% to 4.75% to encourage banks to borrow from it. |
| An increase in borrowing would in turn boost the amount of money in the financial system, making it easier for banks to borrow from each other. | An increase in borrowing would in turn boost the amount of money in the financial system, making it easier for banks to borrow from each other. |
| Inter-bank lending charges have shot up recently amid suspicion over which banks are bearing undisclosed losses linked to investments in bad home loan debt. | Inter-bank lending charges have shot up recently amid suspicion over which banks are bearing undisclosed losses linked to investments in bad home loan debt. |
| The need to shore up capital reserves has also underpinned the credit freeze. | The need to shore up capital reserves has also underpinned the credit freeze. |
| Double whammy | Double whammy |
| The Fed's twin actions are designed to prevent the US economy from slipping into a recession next year, which could have potentially damaging consequences for economic growth around the world. | The Fed's twin actions are designed to prevent the US economy from slipping into a recession next year, which could have potentially damaging consequences for economic growth around the world. |
| The Dow Jones Industrial Average index plunged 2.14% and closed at 13,432.8 following the announcement, while the broader S&P 500 index dropped 2.6% at 1,477.65 and technology-dominated Nasdaq also fell more than 2% at 2,652.35. | |
| The interest rate cut also bolstered global oil prices, with energy traders betting that demand for oil would continue to be strong if US economic growth was not derailed. | The interest rate cut also bolstered global oil prices, with energy traders betting that demand for oil would continue to be strong if US economic growth was not derailed. |
| New York sweet, light oil jumped more than $2 to trade past the $90 level, while Brent crude in London also surged up $1.90, to $89.94. | New York sweet, light oil jumped more than $2 to trade past the $90 level, while Brent crude in London also surged up $1.90, to $89.94. |
| Downturn feared | Downturn feared |
| The Fed warned that recent economic data indicated a slowdown in the US economy as a result of "the intensification of the housing correction and some softening in business and consumer spending". | The Fed warned that recent economic data indicated a slowdown in the US economy as a result of "the intensification of the housing correction and some softening in business and consumer spending". |
| It added: "Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation." | It added: "Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation." |
| These sombre comments differ markedly from those made by Fed Chairman Ben Bernanke after last month's interest rate cut when he sounded a relatively upbeat note on the health of the US economy. | These sombre comments differ markedly from those made by Fed Chairman Ben Bernanke after last month's interest rate cut when he sounded a relatively upbeat note on the health of the US economy. |
| Then it was suggested that the greater risks came from inflationary pressures due to higher energy and food prices. | Then it was suggested that the greater risks came from inflationary pressures due to higher energy and food prices. |
| But with no sign of recovery in the housing market since then and the banking system still not functioning under normal conditions, analysts believe the Fed is now preparing for a sharp downturn with more interest rate cuts expected. | But with no sign of recovery in the housing market since then and the banking system still not functioning under normal conditions, analysts believe the Fed is now preparing for a sharp downturn with more interest rate cuts expected. |