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Tuesday, 21 August, 2001, 21:37 GMT 22:37 UK
US rates cut for seventh time
US interest rates
The US Federal Reserve has cut interest rates for the seventh time this year in a continued attempt to revive the US economy.

The Fed cut the main Federal Funds rate by a quarter point to 3.5%, its lowest level since early 1994.

The move was widely expected as recent economic data has shown the US economy remaining sluggish and company profits still falling.

The Fed said it saw "economic weakness" as the main threat to the economy, which some saw as a sign that more rate cuts could be on the way.


Risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future

US Federal Reserve statement
As well as changing the Federal Funds rate, the Fed also lowered the discount rate by a quarter point to 3%.

US stocks fell after the cut was announced, with investors worried that the Fed gave no indication as to when a recovery might begin.

The Dow Jones Industrial Average fell 145.93 points to close at 10,174.14, while the tech-heavy Nasdaq index slipped 50.05 points to 1,831.3.

On the currency markets the dollar weakened against most major currencies, slipping to 91.77 cents against the euro, and to 119.56 yen.

More cuts to come?

"Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the US economy" the Fed said in a statement after the decision.

It added that risks remained "weighted mainly toward conditions that may generate economic weakness in the foreseeable future".

Some analysts now think we could see yet another cut in US rates at the Fed's next meeting on 2 October.

"The statement points the way to probable additional cuts to come," said Frederick Breimyer, chief economist at State Street Corp.

But a further cut is not certain.

"I think the Fed is keeping its options open and watching the data. The industrial production and retail figures have been stronger and if we get more data along those lines this will probably be the last move," said Henry Wilmore an economist at Barclay's Capital.

US slows

A rate cut was seen as a near certainty after the Fed published its "Beige Book" survey of regional economic conditions earlier this month.

The report showed the weakness in the manufacturing sector was now spreading across all areas of the US economy.

Provisional growth figures for the second quarter showed the US economy growing at an annual rate of 0.7%.

But there is now a worry that the revised figures due next week could show that the US economy either failed to grow at all, or even contracted.

Last week's trade figures which showed both exports and imports falling during July have added to these fears.

Seventh cut this year

The latest rate reduction is seventh cut by the US Federal Reserve this year

The Federal Funds rate, the amount banks charge one another for overnight loans, is now at its lowest level since early 1994 when it stood at 3.25%.

At the start of 2001, the Federal Funds rate stood at 6.5%.

There then followed five half point cuts, and at its June meeting the Fed decided to reduce the rate by a quarter point to 3.75%.

Market gloom

The rate cuts have had little impact on depressed US stock markets.

Since the start of the year, the Dow Jones Industrial Average has fallen 5%, while the Nasdaq Composite, which contains many technology stocks, is down nearly 25%.

A quick turnaround in the US economy has failed to materialise, and the market has had to endure a series of profits warnings and job cuts from major US companies.

Growth in Europe has also slowed to the disappointment of those who thought the region could escape the worst of the downturn and help offset the effects of the US economic problems.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Patrick O'Connell in New York
"Some had wanted more"
Joe Lavorgna, Deutsche Bank in New York
"I think the cut will be effective"
David Ellis, past editor of the Wall Street Journal
"Things are worse because they're not getting better"
Barry Hyman, Ehrankrantz King and Nussbaum
"The equity markets want to hear that the economy is stabilising"

Terror's impact

Signs of a slowdown

Rate cuts

Analysis

Key players

FULL SPECIAL REPORT
See also:

21 Aug 01 | Business
15 Aug 01 | Business
09 Aug 01 | Business
17 Aug 01 | Business
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