Federal Bank reduces interest rates to help job, housing marketFederal Bank reduces interest rates to help job, housing market

2008-01-31 14:12:46 (GMT) (Caymanmama.com - Banks & Banking Business News)

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New York US is facing the threat of recession in the economy and in a bid to save it, Federal Bank announced a second interest –rate cut in a week and reduced a key short-term interest rate by a half-percentage point on Wednesday.Other interest rate reductions were also seen with the federal funds rate was reduced to 3.0% from 3.5%. Federal Fund rate is the overnight bank lending rate that has an effect on the interest paid by consumer on credit cards, home loans and auto loans. Discount rate is the interest rate paid by the banks on the money borrowed directly by Fed was also reduced by 0.5% to 3.5% on Wednesday. This reduction was a result of a joint request made by the nation’s 12 Federal Reserve district bank presidents.

US stock showed some increase at the announcement of the rate cut but ended lower after the final two hours trading.

This came as a surprise because only on January 22, Fed announced rate cuts for both the segments of three-quarters of a percentage point.

The rate cuts were important because the problems in credit market were putting undue pressure on consumers as well as businesses explained Fed. According to Fed, there is growing weakness in both the job and housing market.

Today’s policy action, combines with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity” said the official statement of Federal Bank. It also added that “however, downside risks to growth remain”.

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