The U.S. Central Bank cut interest rates a 0.25 percentage point on Wednesday to its lowest level in 45 years. The U.S. Federal Reserve Board says it is ready to act again if the risk of tumbling prices intensifies.
The Central bank cut the federal funds rate for overnight loans between banks to 1 percent. This latest cut is the 13th time rates have been reduced since early 2001, in an effort to boost the country's foundering economy.
William Ford, a former Federal Reserve official from Atlanta, Georgia, says this move is a way to ward off deflation, which is a sustained fall in prices that hurts corporate profits and employment.
"I think it's very important to reassure the markets that the Fed is ready to attack deflation if it really rears its ugly head, that they will work to keep the lower and middle end of market from showing us higher interest rates," he explained. "We need to get business investment spending perked up and you don't do that by letting long-term rates get away from us."
Wall Street was unmoved by the Fed's latest campaign to kick-start the economy. The Dow Jones Industrial Average fell nearly 100 points to 9,011.53. The Standard & Poor's 500 Index lost just over 8 points, to close at 983.44. Analysts said there was some disappointment among traders that the rate cut was not larger.
Additionally, recent economic indicators show that the U.S. economy is still struggling. The manufacturing sector remains in a slump and the U.S. gross domestic product has expanded at about 2 percent annually, significantly lower than the 3 to 3.5 percent hoped for. The unemployment rate stands at 6.1 percent, which is at a nine-year high.
The single glimmer of optimism has been housing, largely because of low interest rates.