The Hindu : FED cuts interest rate to 45-year low

Online edition of India's National Newspaper
Friday, Jun 27, 2003

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FED cuts interest rate to 45-year low

WASHINGTON JUNE 26 .The Federal Reserve, still striving to coax the struggling economy to stronger growth, cut a key interest rate to its lowest level since the 1950s.

While Fed Chairman, Alan Greenspan, and his colleagues repeated their concerns that economic weakness could trigger a destabilising fall in prices, they also noted on Wednesday hopeful signs that recovery from the 2001 recession may finally be picking up steam.

For that reason, many analysts said the Fed's 13th cut in its federal funds rate could well be the last in a credit-easing campaign that began in January 2001.

At the same time, analysts said that by continuing to mention the remote threat that the country could face a period of falling prices — deflation — the Fed was signalling that it would keep interest rates down.

The rate cut, which the Fed approved by an 11-1 vote at the end of a two-day meeting, pushed the funds rate, the interest that banks charge each other on overnight loans, from 1.25 per cent to 1 per cent, the lowest level since it averaged 0.68 per cent in July 1958.

U.S. banks were expected to respond with a similar quarter-point cut in their prime rate, moving the benchmark for millions of business and consumer loans down from 4.25 per cent to 4 per cent. That would be the lowest since May 1959. — AP

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