US interest rates expected to drop to 1960s level

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The Independent Online

US interest rates are expected to fall to their lowest level tonight since 1962 when John F Kennedy was in the White House.

The Federal Reserve's open market committee meets just two weeks and day since it surprised the markets with a half-point cut to 3.0 per cent. Since then stock prices have fallen, consumer confidence has plunged to a six-year low and new jobless claims have hit a nine-year high, prompting many analysts to predict a cut to 2.5 per cent – the lowest since May 1962.

However, figures yesterday showed manufacturing might be crawling out of its longest recession since the early 1980s. The closely watched NAPM survey showed activity fell less than expected in September while new orders and factory production both increased for a second straight month.

Norbert Ore, the head of the survey unit, said this could provide a "basis for recovery", but added: "It is too early to fully determine the effects of the terrorist attacks."

Patrick Franke, an economist at Commerzbank, said: "Though a rate cut stays on the agenda, the odds for a small step have slightly increased."

Meanwhile, the OECD warned against cutting rates or boosting government spending too far or allowing too many corporate bailouts. Ignazio Visco, its chief economist, said this could boost inflation and lead to rate hikes in 2002.