US cuts interest rates

The US federal reserve has surprised the markets by slashing interest rates by half a percentage point, the third such cut this year, in an effort to stave off recession.

The decision by the Fed's chief policy making group, the Federal Open Market Committee, came during an emergency conference call, and it drops the federal funds rate - the interest that banks charge each other on overnight loans - to 4.5%.

This is the second time this year that the federal reserve chairman, Alan Greenspan, has presided over a sharp rate cut outside of the Fed's scheduled meetings. The Fed cited a number of reasons for its action, including sluggish business investment, eroding consumer confidence, economic turmoil overseas and a slide in the stock market.

Taken together, this climate "threatens to keep the pace of economic activity unaceptably weak," the Fed said in a statement.

The Fed has cut interest rates by a total of 1.5 percentage points this year in an effort to stimulate the US economy. The last rate reduction came on March 20. The Fed cut the funds rate for the first time this year on Jan. 3, in a rare inter-meeting move. It followed that with another cut on January 31.

In the past, Fed chairman Alan Greenspan has said one of the biggest factors affecting whether or not the economy slides into a full-blown downturn is whether consumer confidence holds up during the slowdown.

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