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Wednesday 10th of March 2010
October 29, 2008    

US Federal Reserve cut interest rates by 0.5%

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by Kay Murchie

The US Federal Reserve unanimously voted today to cut interest rates from 1.5% to 1% in a bid to stave off a recession.

Wall Street had been expecting the half-point cut in interest rates and the Dow Jones lost 64 points to 9000 following the news. However, it recovered by 52 points to 9117 within half an hour of the news.

Meanwhile, the Dow Jones rose by 889.35 points to 9,065 yesterday - the second biggest one-day gain. As at Monday, 27 October, the Dow Jones had lost 25% during the month.

Interest rates in the US haven’t been at the 1% level since June 2004. The Fed has made aggressive cuts since September last year, when rates stood at 5.25%.

Prior to the Fed’s announcement, interest rates were also cut in China and Norway, in what is likely to be a global round of emergency interest rate cuts.

Many analysts believe that the Bank of England and European Central Bank will follow suit next week.

Following the rate cut, the Fed announced that the pace of US economic activity appeared to have slowed considerably and it expected inflation to slow as a result of lower energy and commodities prices.

China cut its interest rate to 6.66% from 6.93%, while Norway’s central bank cut rates by 0.5% to 4.75%. However, in stark contrast, Iceland’s central bank raised interest rates yesterday by a whopping 6% just two weeks after it cut rates from 15.5%.

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