News: US cuts rates for first time in 4 years

Thu, 20 Sep 07

The Federal Reserve, America’s central bank, has lowered US interest rates to 4.75%, the first rate cut in 4 years, reports the BBC...

The Federal Reserve (known as the Fed), America’s central bank, has lowered US interest rates to from 5.25 to 4.75%, the first rate cut in 4 years.  The move is aimed at restoring confidence in the US housing market and preventing the crisis in the sub-prime segment from impacting on the wider economy, which is already in a state of slowdown.  In a statement, the Fed said they needed to take action before the credit crunch caused more damage to the economy, the BBC reports.

The Fed started hiking rates from their historic low of 1% back in June 2004 to cool a US economy that was showing signs of overheating.  Since then there have been 17 consecutive rises, peaking at 5.25% where rates have been on hold since mid-2006.

International ripple effects

Other central banks, including the Bank of England, are expected to follow suit to reassure people panicking over their savings, in the wake of the crisis at Northern Rock.  World stock markets soared on the news, with US rising sharply.

Tim Evans, an energy analyst at Citigroup Futures in New York, told the BBC: “This confirms that the US economy is fragile and attempts to avoid a full recession by cutting interest rates may or may not be successful, but this shows that the Fed is taking the possibility of a recession seriously.”



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