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US Central Bank Surprises Economists With Big Interest Rate Cut


After nearly one year of holding interest rates steady, the U.S. Federal Reserve Wednesday cut short term rates by a bigger than expected one half of one percent.

It was a move intended to stun the financial markets and stimulate a slow growing economy. The reduction brings short term rates to 1.25 percent, their lowest level since 1961.

In a statement, the central bank said the economy remained weak with the risk of war in the Middle East further adding to uncertainty. Wayne Angel, a former member of the Fed's policy making committee, applauds this larger than anticipated rate cut.

"Monetary policy always works," Mr. Angel said on CNBC television. "And whenever you provide a greater amount of money liquidity, then pricing power begins to re-emerge. And we'll have less job cuts over the next six months than we would have had otherwise. So Alan Greenspan has huge power. And he has used it in the right way."

There is evidence that the U.S. economy has recently slowed significantly. Growth from July to September was at a three percent annual rate but there were expectations that it would be no more than two percent this quarter. Consumer confidence has slumped to a nine year low.

The Federal Reserve action puts new pressure on the European Central Bank to cut rates to stimulate the slow growing European economy.

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