The Federal Reserve, the US central bank, Wednesday cut short-term interest rates for the second time in as many months. VOA’s Barry Wood reports the quarter-point cut was in line with financial market expectations.
The overnight lending rate came down 25 basis points (.25%) to 4.5 percent. It was the second rate cut this year and is intended to help the housing market, which has been severely impacted by the credit squeeze that briefly froze up global markets in August. The move is also aimed at shoring up an economy that is expected to slow down under the weight of sharp rises in energy costs. Oil prices have doubled in the past 24 months.
Bond market analyst Bill Gross in southern California sees more interest rate cuts ahead.
“It is housing that dominates the economy and ultimately the Fed has to move even lower, perhaps even below four percent, in order to salvage the situation,” he said.
In its statement, the 12-member Fed policymaking group said the economy is balanced between the risks of higher inflation caused by oil prices and a housing-related slowdown. Bob McTeer, a university president in Texas, is a former Federal Reserve governor.
“I think going forward the threat of recession is the greater danger,” he noted.
McTeer spoke on CNBC television.
Earlier Wednesday, the government reported that the economy grew at a surprisingly robust 3.9 percent rate in the July to September quarter. With consumer confidence now declining, most economists expect the rate of growth will slow significantly during this current quarter. Already, even before the Christmas buying season begins, big box retailers have been cutting prices in an effort to draw in reluctant shoppers.
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