October 30, 2008	Thursday	Shawwal 30, 1429

WASHINGTON, Oct 29: The US Federal Reserve cut its benchmark interest rates by a half-percentage point on Wednesday to try to stave off a prolonged recession, and left the door open to further reductions if needed.

The Fed’s unanimous decision takes its target for overnight bank lending to 1.0 per cent, the lowest since June 2004. Wall Street was united believing the Fed would lower rates, although views were split on the likely size of the move.

“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the Fed said. “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending.”

The Fed also toned down its language on inflation, saying only that it expected it to moderate in coming quarters. After an emergency interest rate cut earlier this month, coordinated with other major central banks, the Fed had suggested it still saw some risk inflation could flare.

The US central bank has cut benchmark overnight rates from 5.25 per cent in nine steps over the past 13 months to counter a financial crisis that started with the collapse of the US mortgage market and spread around the world.

Fears of an acute recession have pushed US stock prices down to five year lows this month, although equities enjoyed a large rally Monday, and rose again on Tuesday after the Fed move, before ending little changed.

The US dollar was sharply lower against the euro late on Wednesday and US government bonds yields were marginally higher.

The Fed has acted aggressively to combat the credit crisis with a series of measures aimed at pumping liquid funds into markets that had become largely frozen and risk averse, and policy-makers highlighted those steps in their statement.

Nonetheless, they concluded that “downside risks to growth remain,” keeping open the option of further rate cuts.

Shortly after announcing its decision, the Fed said it had approved currency swap lines with Brazil, Mexico, South Korea and Singapore to ensure central banks in those countries had US dollars to provide to local lenders. It has now established swap lines with 13 central banks.—Reuters