Against a backdrop of plunging consumer confidence and soaring unemployment, the US Federal Reserve on Tuesday announced an aggressive cut in a key rate to bolster a US economy which has been tipped into a recession by the September 11 terrorist attacks.
"The Federal Open Market Committee (FOMC) decided today to lower its target for the federal funds rate by 50 basis points to 2 percent," the FOMC, the Federal Reserve's decision-making body, said in a statement released after a scheduled meeting.
In a related action, the FOMC also approved a 50 basis point reduction in the discount rate from 2 percent to 1.5 percent.
The Federal Reserve's latest move reduced the Federal Funds Rate, which financial institutions charge each other on overnight loans, to the lowest level in 40 years. The move also marked the 10th interest cut by the central bank since the beginning of this year.
Explaining the fresh cut, the FOMC said in its statement that "heightened uncertainty and concerns about a deterioration in business conditions both here and abroad are damping economic activity."
"For the foreseeable future, then, the committee continues tobelieve that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness," it added.
But the committee also sounded an optimistic note by saying that "the long-term prospects for productivity growth and the economy remain favorable although the reallocation of resources to enhance economic security may restrain advances in kproductivity temporarily.
This should become evident once the unusual forces restraining demand abate, it noted. The Federal Reserve embarked on the aggressive half-point cut after the latest economic data showed that the terrorist attacks on New York and Washington have effectively tipped a flagging USeconomy into a recession.
The US economy, which began to slow down in the middle of last year, shrank to a 0.4 percent annual rate in term of the gross domestic product in the July-September quarter this year.
Meanwhile, consumer confidence, which had remained robust earlier this year despite the economic slowdown, plunged to a 7-year low in October. The unemployment rate also soared from 4.9 percent to 5.4 percent, striking a record low in two decades.
Despite the dismal picture, however, economists in Washington hope that the sizable cut in interest rates by the Federal Reserve could help the US economy to rebound in the second half of next year.
(Xinhua News Agency November 7,2001)
