US cuts rates again
Updated
From the earthquake in Pakistan to a man-made disaster of the economic kind and the US Federal Reserve has cut official interest rates for a second time this month, as it tries to prevent America slipping into a recession, in the wake of the nation's banking crisis.
The central bank has just cut the key federal funds rate by half-a-per-cent to just one-per-cent. That's the lowest level in more than four years.
Presenter: Michael Rowland
Speakers: Susan Phillips, George Washington University's School of Business
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MICHAEL ROWLAND: Faced with an economy hurtling towards a potentially deep recession the Federal Reserve is using every tool in its arsenal to minimise the length and severity of the downturn.
After a two-day meeting the bank's interest rate setting committee has cut the benchmark federal funds rate by half a percentage point. That brings it down to one per cent - a level not seen since June 2004.
The decision comes just weeks after the Fed led a coordinated round of global rate cuts.
In a statement the Federal Reserve says the pace of economic activity appears to have slowed markedly and the financial market turmoil is likely to restrain consumer spending even further.
Susan Phillips of George Washington University's School of Business says the central bank had no choice but to cut again.
SUSAN PHILLIPS: Clearly these are very unusual times and I don't think that the Fed cut will make as much difference as you would normally expect. In some sense it will bring it into alignment with market expectations, but it will still make some difference.
MICHAEL ROWLAND: The big difference the Federal Reserve hopes to make is boosting confidence by cutting borrowing costs at a time when Americans are deeply fearful about where the economy is going.
Former Federal Reserve official William Poole says with official rates now at only one per cent, there's limited scope to provide any further stimulus in the months ahead.
WILLIAM POOLE: And now the immediate question in the market and among economists will be, do they go down some more, 75 or 50 or what happens when they get to 25? Does monetary policy have any room left to stimulate the economy?
MICHAEL ROWLAND: Former Federal Reserve board member Lyle Gramley says the economy is in so much trouble that interest rate cuts will now only have a limited impact.
LYLE GRAMLEY: But I think we have to recognise the fact that it is too late to prevent a significant further deterioration in the economy. When we get the GDP number for the third quarter, it is probably going to be negative a half to negative one per cent annual rate. GDP will be down significantly, more than that, in both the fourth and first quarters.
MICHAEL ROWLAND: The US stock market took the rate cut in its stride. It had already been factored, in care of yesterday's monster rally.
But traders are now bracing themselves for another big fall if tomorrow's economic growth numbers are as bad as expected.
