US interest rates now virtually at zero

The US Federal Reserve has tonight slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession. Wall Street shares soared after the Fed, the powerful US central bank, stunned markets by cutting interest rates from an already 50-year low of 1% to virtually nothing. In its statement, the Federal Reserve predicted that rates would stay at the current exceptionally low levels "for some time". It added that it was considering ways it could spend money on supporting the economy and credit markets. Analysts said that the key rate is now virtually zero. "Whether it's zero or 0.25% actually does not make a huge difference," said Holger Schmieding at Bank of America. He added that the more important factor is what policymakers plan to do now that they cannot cut interest rates any further.

The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds. The strategy of a central bank buying government bonds mirrors the so-called 'quantitative easing' carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.