The US Federal Reserve today slashed benchmark US interest rates by a half-percentage point in a bold bid to buffer the economy from a housing slump and related financial market turbulence.
The unanimous decision by the central bank's Federal Open Market Committee took the overnight federal funds rate down to 4.75 per cent, its lowest level since May of last year. The Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 per cent.
It was the first cut in the interbank federal funds rate -- the Fed 's main tool to influence the economy -- since June 2003 and the first half-point cut since November 2002.
Financial markets had widely expected the Fed to lower overnight borrowing costs, but were split over whether the move would be a quarter-point or more-aggressive half-point.
Prices for US stocks and government bonds rose, while the dollar fell, on the rate move. The blue chip Dow Jones industrial average was up more than 190 points, or nearly 1.5 per cent, within minutes of the Fed's decision.
"Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time," the Fed said in a statement outlining its decision.
The central bank said that it still believed the economy faced some risk of inflation, but said that financial market developments since its last meeting in early August had increased the uncertainty surrounding the economic outlook.
The decision comes as evidence accumulates that a prolonged US housing market downturn and a wild financial market ride over the summer has taken a toll on broader economic activity.
A decline in employment in August, the first drop in four years, appeared to confirm that housing-related strains were weighing on businesses and impacting households.
In addition, reports on retail sales and industrial output in August also showed some softness.