WASHINGTON, March 18: The US Federal Reserve slashed key interest rates three-quarters of a point Tuesday, bringing the federal funds rate to 2.25 per cent, to fight a mushrooming credit crisis.The central bank also trimmed its discount rate for direct loans to banks, and now available to some securities firms, by a similar amount, bringing the rate to 2.50 per cent. The vote was 8-2 by the Federal Open Market Committee.

The moves marked the latest effort by the Fed headed by chairman Ben Bernanke to revive a sluggish US economy and fight a global credit crunch that threatens to freeze the banking system.

The statement indicated that the Fed is ready to act further if needed to help stabilize a fragile economy.

“Recent information indicates that the outlook for economic activity has weakened further,” the statement said.

“Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.”

The statement said the actions combined with other moves to boost liquidity, “should help to promote moderate growth over time and to mitigate the risks to economic activity.” It added, “However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.”

Battling the economic downturn and a credit crunch in the banks, the Fed has had already slashed its federal funds rate by 225 basis points from 5.25 per cent last September, in an effort to ease housing and credit market stress.

The Fed is reacting to economic and market turmoil stemming from the meltdown in the US subprime real estate sector, based on loans to people with poor credit.—AFP