US banks cut rates after Greenspan hint

US BANKS began to cut their interest rates yesterday, responding to the signals from the Federal Reserve that a loosening of monetary policy is on the way.

Southwest Bank of St Louis, often ahead of the pack, lowered its prime rate from 8.5 per cent to 8 per cent, a marker that others are likely to follow.

Alan Greenspan, chairman of the Federal Reserve, gave the world a very broad hint on Wednesday that a cut in the Fed's benchmark Federal Funds rate was likely when its decision-making body meets next week.

He cited the stock market decline, the crisis in Asia and their likely restraining effect on inflation as reasons why the central bank was now less concerned about the risks of price rises and more worried about slowing growth.

Figures released yesterday show that the US economy is indeed slowing down. Growth in gross domestic product slowed down to an annual rate of 1.8 per cent in the year's second quarter, revised figures showed, down from a white-hot 5.5 per cent in the first quarter.

Though this is an increase from earlier estimates of 1.4 per cent and 1.6 per cent, it indicates that growth for the year as a whole is likely to be around 2 per cent, down from the rate of roughly 4 per cent of the past two years.

The factors slowing the economy were principally destocking, reversing the inventory growth which had built up in the previous six months, and a decline in net exports.

But business investment powered ahead nearly 19 per cent, housing shot up by 15 per cent and consumer spending was resilient, showing a rise of 6.1 per cent.