Fed offers modest rate cut

WASHINGTON: The Federal Reserve cut benchmark US interest rates by a modest quarter-percentage point yesterday to help the US economy withstand tightened credit and a prolonged housing slump, disappointing Wall Street, which had hoped for more-aggressive action.The central bank’s decision takes the bellwether federal funds rate, which governs overnight lending between banks, down to 4.25 per cent. While the action was widely expected, some economists had thought the Fed might offer a bolder half-point reduction in the rate.The blue chip Dow Jones industrial average was down more than 130 points within minutes of the Fed’s announcement of its action, while prices for US government bonds and the value of the dollar rose.The Fed has now cut overnight rates, their key economic policy lever, by a full percentage point since mid-September in an effort to put a floor under an economy increasingly seen at risk of falling into recession.In a related move, the Fed trimmed the the discount rate it charges for direct loans to banks by a matching quarter point to 4.75 per cent.“Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time,” the Fed’s policy-setting Federal Open Market Committee said in a statement outlining its decision.The Fed noted that financial strains had increased in recent weeks and said some inflation risks remain. It refrained from offering its usual assessment of the balance of risks facing the economy.“Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,” it said.The Fed’s decision follows renewed deterioration in credit markets after major financial institutions around the world reported billions of dollars worth of write-downs due to extensive exposure to delinquent mortgages. - Reuters