Federal Reserve Cuts Key Interest Rate By 0.50%

The US Federal Reserve has cut interest rates for the second time in just over a week, citing concerns over the financial markets. The Fed's action comes just eight days after the central bank slashed rates by three-quarters of a point. The cumulative 1.25 percentage point reduction in the rates in less than two weeks show that US Fed is pulling out all stops to stabilize financial markets.

The Federal Open Market Committee decided on 30th January 2008, to lower its target for the federal funds rate 50 basis points to 3%.In a related action, the Board of Governors unanimously approved a 50 basis points decrease in the discount rate to 3.5%.

According to US Fed press release, US Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but feels that it is necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

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