Fed leads global coordinated rate cut, eases by half point

Wed Oct 8, 2008 7:38am EDT
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WASHINGTON (Reuters) - The Federal Reserve led a coordinated round of global official rate cuts on Wednesday, easing by a half percentage-point, as did the European Central Bank, Bank of England and Swiss, Canadian and Swedish central banks.

In an attempt to stem unprecedented global market turmoil, the Fed cut its key federal funds lending rate by half a percentage point to 1.5 percent and also lowered its discount rate by the same amount to 1.75 percent.

The ECB also cut by a half-point to 3.75 percent as did the Bank of England, taking its rate to 4.5 percent.

China also joined the effort, cutting its key rate 27 basis points.

The Bank of Japan, with rates at just 0.5 percent, did not ease but the Fed said the BOJ expressed its strong support for the coordinated policy action.

"Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months," the Fed said in a statement.

"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."

The Fed said that while inflation has been high, recent declines in energy and other commodity prices had tempered inflation risks.

It said the vote to cut U.S. rates was unanimous and that inflation expectations appeared to be diminishing which could help support price stability.

"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the Fed said.

(Reporting by Glenn Somerville, editing by Mike Peacock/David Stamp)

<p>The Federal Reserve Building is reflected on a car in Washington September 16, 2008. REUTERS/Jim Young</p>