Trying to prevent the weakening US economy from slipping into a deep and prolonged recession, the US central bank, the Federal Reserve, has cut interest rates aggressively, but not by as much as some economists had predicted.
Fed Chairman Ben Bernanke and his policy makers went for a 0.5 percent reduction, while some on Wall Street thought it should have been a much as 0.75 percent.
The 0.5 percent cut that was announced brings the Fed’s benchmark rate down to one percent, the lowest since June 2004.
It has cut the cost of borrowing in nine steps from 5.25 percent over the past 13 months to counter a credit crisis that started with the collapse of the US mortgage market.
By making this 0.5 percent cut the Fed is demonstrating it is not too worried about US inflation which has slowed as oil prices have tumbled and consumer spending has fallen.
“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the Fed said in a statement outlining its decision. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending.”
The rate cut is intended to get people borrowing again for things like mortgages.
A long-term study just released by US economists concluded that the world’s biggest economy will be hit harder by the housing bubble bursting than the stock market slump.
They said falling property prices will have an major impact on Americans’ personal spending.