US Federal Reserve expected to cut interest rates

Federal Reserve Chairman, Ben Bernanke, is expected to cut interest rates below the current 1 percent, although policymakers are soon running out of options regarding cutting rates further and are also set to announce a number of other measures, such as buying debt backed by home loans.

This measure is hoped to bring back confidence in the housing market and bring an end to its dramatic decline.

Quantitative easing, which was brought into play in Japan in the early 1990s, might be used by the central bank in order to fight off the threat of deflation.

The risk of deflation increases as the notion of zero percent interest rates is being mooted due to the fact that if consumers believe that prices will continue to get cheaper then they will withhold making large purchases, which in turn has an impact on the economy.

Mr Bernanke revealed in his latest speech that economic policy must face the risks of both financial stability and economic growth head on.

Thus far bringing into play quantitative easing, the Federal Reserve has pumped millions of dollars into financial markets although despite this, there are new cracks emerging in the economy as industrial production has fallen by 0.6 percent, while manufacturing is down 1.4 percent.

Story link: US Federal Reserve expected to cut interest rates