Commodity Online
WASHINGTON: In yet another attempt to keep the credit crunch from triggering a prolonged recession, the US Federal Reserve on Tuesday slashed its key interest rate by 75 basis points.

The Fed disappointed some market players expecting a one percentage point interest rate cut, instead announcing a cut of 75 basis points (three quarters of a percentage point) to 2.25 per cent.

The Federal Open Market Committee voted 8-2 to cut the fed funds rate at which banks lend to each other from 3 per cent to 2.25 per cent, its lowest level since December 2004.

The Fed also lowered the discount rate it charges banks and brokers that borrow directly from the Fed by 75 basis points to 2.5 per cent, leaving the spread over fed funds at 25 basis points.

Equity markets, which had rallied strongly in advance of the decision, gave up some ground after the rate announcement, but then recouped and added to those earlier gains. The Dow Jones Industrial Average closed up more than 400 points.

As recently as a few days ago, economists had called for only a half-percentage-point reduction in the fed funds rate. Even that would have been an aggressive move coming just weeks after officials cut the funds rate by 125 basis points over an eight-day period in January.

It may also signal that officials are growing uneasy about the US dollar's decline against other major currencies, which has pushed up prices of commodities like oil that are priced in dollars.

The US central bank has set aside lingering concerns on inflation arising from a jump in oil prices, some of which is blamed on the continuing deterioration of the dollar's value