The US Federal Reserve today cut America's key interest rate by 0.5% to 1%.
The US Federal Reserve today cut America's key interest rate by 0.5% to 1%.
The Fed said the pace of the US economic activity had "slowed markedly".
The deepening of the global financial turmoil was set to put further pressure on growth, by continuing to hamper the availability of credit and hit consumer spending power as a result, it added.
It said in a statement accompanying its rates decision: "Recent policy actions, including today's rate reduction, co-ordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.
"Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability."
The Dow Jones Industrial Average on Wall Street slipped into negative territory after the news, having already priced in the widely expected cut yesterday, soaring almost 11% overnight.
US interest rates have not been as low as 1% since June 2004, when America's main rate had been held at 1% for a year.
The Bank of England's Monetary Policy Committee (MPC) is widely forecast to wipe another half point off UK rates - currently at 4.5% - after its next meeting on November 5 and 6. There has been speculation it may act sooner with another emergency cut as the UK is also staring recession in the face.
And MPC member David Blanchflower stepped up the pressure on fellow policymakers tonight by warning the UK faced a "relatively deep and long-lasting recession" unless rates were cut aggressively.
Despite the rest of the committee's fears over inflation, Prof Blanchflower has been a consistent and lone voice for rate cuts in the past year.
He said tonight that monetary policy had "not been sufficiently forward looking" and that since last summer a range of surveys of UK economic activity had shown a marked downturn.
In a lecture at the University of Kent in Canterbury, he said: "It is not sufficient to consider the data month by month until it emerges that the UK is in recession. I believe this trend has been apparent for some time. The synchronised downturn in so many business surveys should have led us to realise sooner that the UK economy was entering a recession."
He added: "My view remains that interest rates do need to come down significantly - and quickly. If rates are not cut aggressively we do face the prospect of a relatively deep and long-lasting recession."
Experts at Capital Economics said today that the prospect of such a deep recession could even see rates in the UK slashed as low as 1%.
The group's economists said: "Extraordinary circumstances require extraordinary actions.
"With the current recession likely to be deeper than that in the early 1990s and the credit crunch impairing the effectiveness of monetary policy, we now expect UK interest rates to fall to an all-time low of just 1%."
Recent economic indicators in the US have also made for grim reading, but market analysts believe the rates cut may now only be enough to boost confidence rather than halt what seems a relentless slide into recession.
Howard Wheeldon, senior strategist at BGC Partners, said: "The big question is whether any of this will do any good. At best I can offer just one positive thought on this - it will probably stop the situation getting any worse."
