Fed Cuts Interest Rates
September 18, 2007
The Federal Reserve has today announced its decision to cut interest rates by a half a percent in a bid to bring some further stability to world markets and enhance the US economic recovery.
US interest rates are set to fall from their previous 5.25% down two increments to 4.75%, which has ultimately seen shares on the stock markets rise to their highest point in over four years on the back of hopes that the worldwide economy could be taking steps towards improvement.
This is the first time that interest rates have been cut in well over a year, despite heavy pressure from analysts across the world in order to help redress the volatility caused by the sub-prime lending market.
The sub-prime lending market, once seen as an attractive investment prospect, has led to widespread over exposure to liquidity-intensive foreclosures and repossessions, ultimately breeding a credit crunch environment.
As a result, business and economy growth has undoubtedly been hindered with banks less willing to finance projects, and increasing the rate of interest they charge to one another. The situation has also led to widespread unrest in global stock markets as investors have been reluctant to move outwith the realms of absolute prudence.
Whilst a small minority of analysts wanted the Federal Reserve to hold rates in order to focus on eradicating the inflationary problems the economy has been facing, generally the news has been well received today within the US.
The mainstay of economic opinion was that a cut in interest rates would help reintroduce some form of stability, easing the sub-prime lending problem by reducing the cost of variable mortgage repayments.
The news looks set to bring some form of stability back to investment markets, as it should also help ease the liquidity problems currently facing lenders across the US.