November 8, 2001	Thursday	Shaba’an 21, 1422

LOS ANGELES, Nov 7: The Federal Reserve on Tuesday cut interest rates by half a percentage point to their lowest level since 1961, and citing the deteriorating overseas economy, suggested more cuts could be in store.

The Fed cut its benchmark federal funds rate target to 2 per cent from 2.5 per cent, its 10th rate cut this year and the third half-point cut since the Sept 11 terrorist attacks.

The half-point cut suggested the central bank is deeply concerned that the economy, after a minor post-attack bounce, has resumed declining and is probably in its first recession since 1990-91.

The move brings cumulative cuts this year to 4.5 percentage points, or by more than two-thirds, the steepest proportional cut since the mid-1970s.

Economic reports in recent weeks have been almost uniformly dismal, suggesting the economy could be contracting at a rapid clip.

The unemployment rate shot up to a five-year high of 5.4 per cent in October from 4.9 per cent in September, manufacturing activity is falling at its fastest pace since the depths of the 1990-91 recession, and an unrelenting drumbeat of layoff announcements suggest unemployment could shoot higher.

The only major bullish indicators are the snapback in stock prices from their post-attacks lows.

Reuters adds from Washington: The Fed lowered its key federal funds rate for overnight bank loans for the tenth time this year to 2 per cent the lowest level since the Kennedy administration in 1961. The central bank also dropped its more symbolic discount rate by a half-point to 1.5 per cent.

The latest cut comes against an increasingly grim backdrop of rising unemployment and eroding confidence. The third quarter logged the sharpest quarterly contraction in national economic activity since the last recession in 1990-91.

In its statement, the central bank said it still saw weakness, rather than price pressures, as the main threat to the US economy, a sign it was ready to cut rates further should gross domestic product continue to shrink as most private forecasters expect it will into early next year.

Last week, the Commerce Department confirmed that gross domestic product shrank at 0.4pc rate in the third quarter the first contraction since the last recession in 1999.

Most economists foresee GDP shrinking again this quarter and many think this will continue in the first quarter 2002, easily meeting the commonly accepted definition of a recession in which national output falls for six months or more.