Fed, Central Banks Cut Rates To Aid World Economy - Cleveland 19 News Cleveland, OH

Fed, Central Banks Cut Rates To Aid World Economy

WASHINGTON (AP) - The Federal Reserve, acting in coordination with other global central banks, cut a key U.S. interest rate by half a percentage point Wednesday to steady a teetering global economy.

The Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent, while the European Central Bank sliced its rate to 3.75 percent.

Also taking part were the central banks of China, Canada, Sweden, and Switzerland. Bank of Japan said it strongly supported the actions.

"The recent intensification of the financial crisis has augmented the downside risks to growth," the Fed said in explaining the coordinated action.

It was the latest in a long series of actions, over the last several weeks, that the Fed has taken in coordination with other federal agencies, Congress and the White House to shore up a financial industry stung by bad loans, mounting losses and - in many cases - collapse. President Bush signed a $700 billion financial bailout bill into law on Friday.

The Fed's action reversed its current policy on interest rates, which had been to hold them steady out of concern that more cuts would fuel inflation. Since Fed Chairman Ben Bernanke and his colleagues put a stop to interest cuts in June, economic and financial conditions have deteriorated significantly.

"The pace of economic activity has slowed markedly in recent months," the Fed said. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."

Although inflation has been high, the Fed believes the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy.

In addition, the Fed reduced its emergency lending rate to banks by half a percentage point to 1.75 percent. Given the intense credit crisis, banks have been ramping up their borrowing from the Fed's emergency "discount" window.

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