Fed cuts US interest rates by a quarter point

The US Federal Reserve cut interest rates by a further quarter point yesterday following signs that the economy was weakening and inflation was under control. The Fed trimmed the key federal funds rate at which banks lend to one another overnight from 5.5 to 5.25 per cent.

Shares had dropped in advance of the Fed meeting due to profit-taking. After setting records for three days running, the Dow Jones index had fallen almost 30 points before the Fed's decision. The dollar had eased nearly half a pfennig against the mark to DM1.4870 after the German move.

Wall Street's earlier surge this week had reflected mounting hopes of an interest rate reduction as economic activity continued to disappoint and inflationary pressures subsided. Although some analysts were still cautious about whether the Federal Reserve would act today or wait until its next meeting in March, a slightly disappointing December figure for factory gate prices yesterday did nothing to dent the financial markets' hopes.

Prices charged by manufacturers rose 0.5 per cent last month, mainly due to a recovery in energy prices from an earlier dip. The "core" prices measure, excluding food and energy, rose only 0.1 per cent in the month and 2.5 per cent in the year to December.

Christopher Low, an analyst at HSBC Markets in New York, said: "This figure will not worry the Fed one iota about inflation."

Nor did it offset the impact on market sentiment of earlier news of a dismal Christmas for retailers and a drop in consumer confidence to its lowest level for nearly two years.

The Bundesbank cut its main money market interest rate, the repo rate, from 3.55 to 3.4 per cent yesterday, the fourth reduction in as many weeks, and a bigger fall than expected.

The move came despite news of faster-than-expected growth in M3, the Bundesbank's monetary target, earlier in the week. Analysts said it showed the authorities' concern with the economic slowdown.

Hopes of an early reduction in the discount rate, which sets the floor for other interest rates, were revived. Dietrich Beier, an economist at Bankgesellschaft Berlin, said: "It shows the Bundesbank has no reason at all to hit the brakes."

The Bundesbank reduced the discount rate by half a point to 3 per cent on 14 December. The US Fed last cut its key Federal funds rate by a quarter point to 5.5 per cent on 19 December.

The international trend towards lower interest rates contributed to the success of a gilts auction in Britain. There were total bids of pounds 5.9bn for the pounds 3bn worth of stock up for auction, and the "tail" between the average and highest yield was a narrow two basis points.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Recruitment Genius: Security Officer

£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

Ashdown Group: Business Analyst - City, London

£50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss