US revs up effort to avert recession

WASHINGTON: The US Federal Reserve has stepped up its campaign to head off recession with another half-point rate cut as part of an aggressive move to avert a downward economic spiral, analysts say.
The cut on Wednesday in the federal funds rate to 3% came just eight days after an emergency cut of 0.75 percentage points in the face of a global stock market rout and concerns the world’s biggest economy was sinking fast.
Analysts say the Fed headed by Ben Bernanke was acting more aggressively than any time in the past two decades.
“We must go back to early 1985 to find a period when rates fell more sharply in such a short period of time,” Robert Brusca at FAO Economics said.
Brusca said Fed members had an “amorphous fear of recession snowballing and getting out of hand”.
Although the US had survived recessions before, Brusca said some see a more troublesome scenario.
“Having seen what happened to Japan with its property market ills, the Fed decided not to risk that a weak housing market topped by a recession added to a weakened financial sector that could turn into an economic disaster,” Brusca said.
The cuts in the federal funds rate, used for overnight interbank loans, can help lower a wide range of borrowing costs for consumers and businesses, and as such can help spur activity in an economy buffeted by the worst housing slump in decades which has spilled over to the financial sector.
“The FOMC has clearly stated that the economy is job one,” Joel Naroff at Naroff Economic Advisers said.
“The members recognise that the threats to the financial markets and therefore economic growth remain and that they had to get the Fed into accommodation mode. They have done so in a very dramatic fashion and have made the financial markets very happy.”
As the Fed members met, the commerce department reported US economic growth slowed sharply to a 0.6% annual pace in the fourth quarter of 2007. Other data however have been mixed. – AFP