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Central Banks Cut Interest Rates; Stocks Rise


Top officials of the U.S. central bank decided to cut their key interest rate by half a percent to one percent Wednesday.

U.S. Federal Reserve officials say they made the cut because the economy is slowing "markedly". In a note explaining their decision, Fed officials said key parts of the economy, like consumer spending and business investment are slowing down. This is the second rate cut in a month, and officials expect lower interest rates and other efforts to bolster the economy will eventually return "moderate" economic growth.

The Fed is one of many central banks around the world cutting rates in an effort to stimulate the battered global economy.

China's central bank has also cut interest rates, a top official of the European Central Bank says the ECB is likely to slash rates next week, and news reports say Japan might reduce its already-low interest rate.

The cuts are intended to boost economies by making it cheaper to borrow money to buy the things needed to expand businesses, build homes, and create jobs.

U.S. share prices declined right after the Fed rate cut was announced, but other investors cheered the latest in a long series of efforts to head off a global recession. Stock prices also declined in Germany, but surged upward in Tokyo, London and Paris. Stocks made modest gains in Hong Kong.

Another sign that recovery efforts are beginning to help is seen in the increased willingness of banks to lend money to each other. The "Libor" rate measures how worried lenders are that they might not be repaid, and it has been gradually improving (i.e., declining) for about two weeks. Tight credit markets have threatened to stall the economy.

Some information for this report was provided by AFP and AP.