Rate cut expected in US

The only doubt in the minds of many economic forecasters is not if the US central bank will cut interest rates this week but by how much.

The Federal Reserve's open market committee makes its decision on Wednesday evening, with an almost unanimous consensus among commentators that the committee will lower US domestic interest rates from their present level of 1.25%.

A poll of 21 Wall Street bond dealers conducted by the Reuters news agency last week found that all expected the Federal Reserve would lower the cost of borrowing - with 12 of those polled predicting a cut of half a percentage point. A cut of that magnitude would take the key federal funds rate down to 0.75% - the lowest for the base rate since 1958.

Any reduction on Wednesday would be the 13th successive loosening of monetary policy by the Federal Reserve and its chairman, Alan Greenspan, since the beginning of 2001 when the US base rate stood at 6.5%.

Since then the US economy has been buffeted by the fallout from the bursting of the dotcom bubble, the September 11 attacks and the subsequent US-led invasions of Afghanistan and Iraq.

Mr Greenspan has recently signalled the possibility of deflation - a fall in the gen eral level of prices - telling a recent gathering of central bankers that this week's committee meeting would discuss deflation "in some considerable detail".

Despite the earlier easing in monetary policy, American unemployment continues to increase, while the economy's overall growth came close to stalling in the early part of this year.

But there are some signs of optimism. America's housing market remains robust, while the value of dollar has weakened considerably in recent months against the currencies of America's major trading partners - suggesting that the threat of deflation remains remote.