The US central bank has made the move to cut rates to 4.75 per cent from 5.25 per cent amidst the sub-prime turmoil.
New Star Asset Management chief economist Simon Ward says: “The Federal Open Market Committee’s decision to lower the Fed funds and discount rates by 50 b.p. represents a bold attempt to forestall the negative economic impact of recent financial market dislocation.
“Visibility is low and there is a risk that the Fed has jumped the gun – current economic indicators remain consistent with expansion and market stresses were starting to abate before the surprise move. The consensus is convinced that further cuts will follow but a scenario of “one and done” should not be ruled out. Remember August 2005 in the UK?”