News: Crashing prices prompt US rate cut

Thu, 01 Nov 07

The Federal Reserve has cut the US interest rate for the second time this year...

Confronted with surging oil prices and falling house prices, it cut rates by 0.25% to 4.5%. The move - to stimulate economic activity and keep the US from dipping into a recession - received a muted response from investors.

It also helped the pound soar to a 26-year high against the dollar. The US central bank, which also cut rates by half a point last month, made the announcement at the conclusion of its two-day meeting.

It came as the US government announced that the economy grew at a stronger-than-expected 3.9% rate in the July-September quarter. However, economists are worried that growth will be less than half that amount in the current quarter as the country struggles with a deepening housing slump.

Fed policymakers said in a brief statement that "the upside risks to inflation roughly balance the downside risks to growth.” The decision followed a 9-1 vote with Thomas Hoenig, president of the Kansas City regional Fed bank dissenting, arguing that he preferred no change in the funds rate.

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