The Federal Reserve cut US interest rates by a quarter-point last night, to only 2 per cent, the lowest since December 2004, as it pursued its drive to limit America’s economic downturn.

The move was the seventh consecutive reduction in a series in which the Fed has lowered rates by 3.25 percentage points since September as it strives to bolster faltering growth in the United States. The Fed also lowered its discount rate for emergency lending to US banks by another quarter-point to 2.25 per cent.

The modest scale of last night’s reduction and speculation that it could be followed by a temporary pause in the Fed’s rate-cutting campaign combined to unnerve Wall Street. The Dow Jones industrial average, which had earlier gained more than 100 points, topping 13,000 for the first time since January, lost ground after the Fed’s verdict and closed down 11.80 points at 12,820.10.

The Fed failed to fulfil predictions that it would give a clear signal of a temporary halt to further rate cuts. While it did drop its past view that “downside risks to growth remain”, it kept markets guessing over its next move. Striking a balanced tone, it pledged to “act as needed” to both promote growth and curb inflation.

Fed reluctant to say how far it will go

Financial markets believed the Federal Reserve would signal an end to its campaign of rate cuts, but it may not

• Federal Reserve unveils quarter-point reduction in interest rates

Background

• Darling hit with £16bn tax hole

• King's City bonus comment attacked

• Bank predicts crisis will hit UK hard

• Consumer slowdown 'could last until 2010'

Multimedia

• Full credit crunch coverage

• Video briefing: global market instability

Background

• Goldman loses star sub-prime trader

• Hedge funds stars made $2bn from US sub-prime

• Who caused this nightmare? The blame spreads

• Sub-prime mortgages explained

Related Links

• Fed reluctant to say how far it will go

• Fed continues to want to cut rates

The Fed’s action came after official confirmation that the US economy almost ground to a halt in the first quarter. Growth just matched the previous three months to register a quarterly gain of only 0.15 per cent. This was equal to an annual rise of 0.6 per cent on the basis favoured by Wall Street.

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• Repossession orders at a record high
• Retailers police industry through database
• Royal Mail demands cash after £279m loss