Page last updated at 22:03 GMT, Wednesday, 30 April 2008 23:03 UK

Further cut in US interest rates

Fed chairman Ben Bernanke
The Federal Reserve has been cutting rates aggressively since September

The Federal Reserve has cut its key interest rate from 2.25% to 2% as it aims to avoid a possible US recession.

It is the seventh rate cut since last September, which has seen the federal funds rate drop from 5.25%.

Opinion was divided about whether the Federal Reserve's statement indicated that this would be the last cut in interest rates.

The economy has been hit by a housing market downturn and some analysts believe it is already in recession.

"This the seventh cut from the Fed since September and the committee will obviously be hoping it can be the last," said BBC economics editor Stephanie Flanders.

The Fed was somewhat more dovish this time and they can easily go both ways from here
Michael Woolfolk, Bank of New York Mellon

"The fact that today's GDP figures showed positive growth in the first quarter offers some grounds for hoping that the US will not see two quarters of negative growth this year, at least if the fiscal stimulus package works as intended and boosts spending over the summer."

Weak activity

The US government's tax rebates have just started reaching consumers, which should boost spending.

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Trucker John Taylor's prediction for his tax rebate

The Federal Reserve's statement suggested that was badly needed.

"Recent information indicates that economic activity remains weak," it said.

"Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."

Eight members of the rate-setting committee, including its chairman Ben Bernanke, voted for the rate cut, with two members voting for no change.

'Downside risks'

The statement did contain subtle indications that there may not be many more cuts to come.

In the statement announcing March's rate cut, the committee said that the action taken so far should help to promote growth, but warned that, "downside risks to growth remain".

The latest statement did not contain such a warning.

"The Fed was somewhat more dovish this time and they can easily go both ways from here," said Michael Woolfolk, at Bank of New York Mellon.

"People were expecting a clear sign that the next move would be a pause, but the statement doesn't make that clear."

The Dow Jones Industrial Average closed down 0.09% at 12,820.1, having earlier risen above 13,000 for the first time since January.


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