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Fed cuts rates by 0.25%


Fed cuts rates by 0.25%


The US Federal Reserve has, as expected, cut interest rates by a modest quarter percentage point. The decision by Fed Chairman Ben Bernanke and his policymakers may have been influenced by GDP increasing at a faster than expected pace in the first three months of the year.

Trying to stop the world’s biggest economy slipping into recession, the US central bank has slashed its benchmark rate over the last eight months from 5.25% to 2%.

However the cuts are not getting through to home owners. The average US 30-year fixed mortgage is 6% and adjustable mortgage rates have risen during that time. Existing home prices continue to slide and foreclosures have surged.

The latest GDP figures, which show the US economy grew by 0.6% in the first quarter, seem to indicate that that economy is struggling but still growing. But they were not solid enough to end the debate on whether the country is sliding into recession.

The question now is whether the Fed will pause in its rate cutting campaign. Some analysts said that would be a positive sign, indicating the US economy has steadied with the worst of the market turmoil over, but other fear that things could turn negative again in the second quarter.

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