Fed trims interest rates for third time

 

The Federal Reserve yesterday cut interest rates for the third time in less than two months in a further effort to shield the US economy from the effects of the international financial turmoil of the past year.

The key federal funds rate was cut by a quarter of one percentage point to 4.75 per cent. The discount rate was cut by the same amount to 4.5 per cent.

The Fed's policy-making open market committee said: "Although conditions in financial markets have settled down materially since mid-October, unusual strains remain."

Stocks on Wall Street rebounded minutes after the afternoon announcement, shrugging off a cautious morning that saw most sectors trading lower.

Faced with mounting international turmoil, the Fed reduced short-term interest rates at the previous meeting of the open market committee in September, and then surprised financial markets with another quarter-point easing two weeks later.

That second cut did not follow a committee meeting, but was implemented by Alan Greenspan, the Fed chairman, after consultation with other committee members, and was widely interpreted as a sign of the central bank's concern about the economy. Mr Greenspan noted at the time that financial institutions were shying away from risk, and seeking safety and liquidity.