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
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected