US Central Bank Cuts Key Interest Rate

The interest rate cut is the biggest by the Federal Reserve since the aftermath of the terrorist attacks of 2001. The central bank cut the federal funds rate, the interest that banks charge each other on overnight loans, by three-quarters of a percent to 3.5 percent.

Reports say the surprise move came during an emergency telephone conference among Fed officials late Monday, after financial markets from Asia to Europe to the Americas plunged in unison. In a statement, the central bank said it decided to act in view of a weakened economic outlook and increasing risks to growth.

In recent weeks, the United States - the world's biggest economy - has experienced a string of worrisome developments, from slower economic growth to higher unemployment to continued weakness in the housing market. Addressing the U.S. Chamber of Commerce, Treasury Secretary Henry Paulson urged Congress to work swiftly with the Bush administration to craft an economic stimulus package aimed at boosting U.S. consumer spending and business investment.

"We need to do something now, because the short term risks are clearly to the downside, and the potential benefits of quick action to support out economy have become clearer," he said. "Time is of then essence here, and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible. The legislation that will best serve our economic interests must be swift, robust, broad-based, and temporary."

Stimulus packages usually consist of a boost in government spending, tax cuts or both.

The combination of aggressive interest rate cutting and cries for stimulus is widely viewed as a sign that Washington is bracing for a tough economic road ahead. Yet Secretary Paulson stressed there is no cause for panic.

"I continue to have confidence in the underlying strength of the global economy. The U.S. economy is resilient, unemployment remains low, and job creation continues, albeit at a modest pace," he added. "The structure of our economy is sound, and our long-term economic fundamentals are healthy."

The interest rate cut did not prevent U.S. financial markets from plunging after the opening bell. Oil prices also declined. - Source: By VOA News