The Federal Reserve is widely expected to cut interest rates by at least a half-per centage point this evening in an effort to prevent a credit crisis from tipping the United States into a deep and prolonged recession.
The Federal Open Market Committee, the policy-setting arm of the US central bank, is expected to announce its decision at around 2.15 pm (6.15pm Irish time.). It began the second day of a two-day meeting at around 9 am (1pm Irish time), an official said.
The Fed is widely expected to lower the overnight fed funds rate target a half point to 1 per cent. That would be the lowest since June 2004 when the Fed was fighting a perceived risk of deflation, which some fear is about to re-emerge.
Some analysts believe the gloomy outlook will push the Fed to slash borrowing costs by as much as three-quarters of a point, to the lowest level in 50 years.
The US stock market was down slightly in morning trade a day after a big rally ignited by hopes for lower interest rates and signs credit markets were thawing.
The Fed has cut rates to 1.5 per cent from 5.25 per cent in eight steps over the past 13 months to counter a credit crisis that started with the collapse of the US mortgage market and has spread around the world. The most recent move was a surprise half-point cut between regular meetings on October 8th coordinated with a number of other central banks, including the ECB.
In a statement accompanying that rate cut, the Fed said inflationary pressures had started to moderate and risks to growth had increased as the financial storm intensified. Other central banks are also moving to shore up their economies.
China cut interest rates today for the third time in six weeks and Norway lowered rates as well. According to a source, the Bank of Japan will consider a rate cut on Friday, which would be the first in seven years.
The European Central Bank is also expected to reduce rates by a half-percentage point at a meeting next Thursday poll. That would lower the benchmark ECB rate to 3.25 per cent, the lowest in two years.
Some market participants think the Fed may be on the way to cutting rates to zero, just as Japan was forced to do to counter deflation in the 1990s. A more-forceful three-quarter point cut would be insurance against the risk of deflation.