The US Federal Reserve has lowered benchmark borrowing costs by a quarter percentage point to 4.5%. The thinking of Fed chairman Ben Bernanke and his policy makers is that the move will help prevent the US economy being dragged down by the housing slump and tighter credit.
The cut in the key interest rate follows last month’s surprisingly large half-point reduction which Fed officials had hoped would head off any potential economic weakness. Making the US central bank’s job more difficult is the fact that the latest government figures, released just hours before their decision, showed US economic growth was even stronger than analysts had expected in the third-quarter.
Gross domestic product rose at an annual rate of 3.9%, its fastest pace since the beginning of 2006, spurred by consumer spending and strong exports. What the Fed wants to avoid is cutting rates too far fuelling inflation, so economists said this cut is likely to be the last for some time.