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Shares fall despite US rate cut | Shares fall despite US rate cut |
(about 1 hour later) | |
European stock markets are down following US and Asian falls, which came despite Tuesday's US rate cut. | |
The Federal Reserve's cut from 4.5% to 4.25% had been expected by the markets. Many had hoped for a bigger reduction. | The Federal Reserve's cut from 4.5% to 4.25% had been expected by the markets. Many had hoped for a bigger reduction. |
The Federal Reserve also warned about "the intensification of the housing correction and some softening in business and consumer spending". | The Federal Reserve also warned about "the intensification of the housing correction and some softening in business and consumer spending". |
In London, the FTSE 100 fell 0.6%. Frankfurt's Dax lost 0.5% and the Cac 40 in Paris fell 1.0%. | |
Earlier, New York's Dow Jones fell 2.1%, the technology-heavy Nasdaq fell 2.5% and the Nikkei in Tokyo closed down 0.7%. | |
'Get over it' | 'Get over it' |
"The action on Wall Street was very much knee-jerk on the disappointment of not getting a 50 basis point cut," said Craig James at Commonwealth Securities. | "The action on Wall Street was very much knee-jerk on the disappointment of not getting a 50 basis point cut," said Craig James at Commonwealth Securities. |
"Investors will get over it, but for today at least it will be a case of following the negativity," he added. | "Investors will get over it, but for today at least it will be a case of following the negativity," he added. |
The Federal Reserve's latest warnings 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. | The Federal Reserve's latest warnings 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. |
At that time, it was suggested that the greater risks came from inflationary pressures due to higher energy and food prices. | At that time, it was suggested that the greater risks came from inflationary pressures due to higher energy and food prices. |
'Increased uncertainty' | 'Increased uncertainty' |
But on this occasion, it warned that "recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation." | But on this occasion, it warned that "recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation." |
"They left open the possibility of additional rate reductions," said Carl Tannenbaum, chief economist at LaSalle Bank. | "They left open the possibility of additional rate reductions," said Carl Tannenbaum, chief economist at LaSalle Bank. |
He expects the next cut could come as soon as January. | He expects the next cut could come as soon as January. |
In addition to cutting its benchmark rate, the Federal Reserve also trimmed the rate at which it lends money to banks. | In addition to cutting its benchmark rate, the Federal Reserve also trimmed the rate at which it lends money to banks. |
In an attempt to smooth out problems in the credit markets, it reduced its primary discount rate from 5% to 4.75%. | In an attempt to smooth out problems in the credit markets, it reduced its primary discount rate from 5% to 4.75%. |
This is designed to boost the amount of money in the financial system, making it easier for banks to borrow from each other. | This is designed to boost the amount of money in the financial system, making it easier for banks to borrow from each other. |