US Fed cuts rates by 25 bps to 4.5 per cent

Mumbai: The US Federal Reserve has lowered the federal funds rate by 25 basis points to 4.5 per cent. The discount rate has also been cut by a quarter-point to 5 per cent in an effort to stimulate economic activity and keep the country from dipping into a recession.

However the Fed hinted that it may be done with easing rates for now.

The Federal Open Market Committee (FOMC) said in a statement that the upside risks to inflation roughly balanced the downside risks to growth after this cut the fed statement also warned that higher energy and commodity prices may spur faster inflation and the pace of economic expansion is likely to slow down in near-term.

Fed has cut discount rate by 25 bps to 5 per cent. The FOMC voted 9-1 for the fed funds rate cut.

The FOMC feels that the strains in financial markets have eased 'somewhat.' Housing is likely to slow pace of economic slowdown, it added. Though some inflation risks remain, the Fed will continue to monitor the situation, the Fed’s statement said.

According to CNBC analysis, there have been several significant changes in the Fed’s policy. That suggests what the Fed is likely to do in the future.

Reluctantly, the Fed gave the market what it wanted - 25 bps cut but albeit said, “Hey, the punch-ball, we are taking it away for the rest of the year.” They brought back inflation concerns in form of commodities and said that the other inflation concerns - that may be the dollars, it caused inflation and the weakness risk balanced that; it is the first time we had that.

Last time there was no balance of risk assessment. I think it is kind of a take back; the initiative here. After having had it’s hand forced a little bit by the markets, in this cut, it is trying to say that we are not going to unnecessarily cut rate.

Tony Crescenzi of Fed Funds Futures Markets had bet on what the Fed will do with its overnight lending rates – they have seriously backed off the expectation for a futures cut.

The Fed’s next move would probably be no move at all and may call a pause.