Fears Of US Recession Eased With Fed Rate Cut: Economists

Source : Channel NewsAsia, 19 September 2007

WASHINGTON : Stocks rallied on Tuesday after the Federal Reserve slashed US interest rates.

The cut in the federal funds rate by a half a percentage point to 4.75 percent ignited a powerful rally on Wall Street, with stock indexes surging by more than 2.5 percent.

The Federal Open Market Committee headed by Ben Bernanke, in a unanimous decision, also cut its discount rate for direct central bank loans by 50 basis points to 5.25 percent.

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Fears Of US Recession Eased With Fed Rate Cut: Economists

Economists say that fears of a recession in the United States may have receded with the decisive action by the central bankers.

The Fed has taken this dramatic step - more than most in Wall Street had expected - because it is worried about the effects of recent credit problems impacting the broader American economy.

Fred Bergsten, Director, Petersen Institute for International Economics, says it is good for the global economy: "Confidence has been shaken by what's going on in the housing market, and so the fact that the central banks are clearly on the case, and the Federal Reserve shows it can react swiftly and in a major way is nothing but good news for the world economy."

With inflation in check, the Fed still has room to manoeuvre in order to steer the US economy away from recession. - CNA/ch