Bernanke Orders Half A Percentage Point To 1.5 Percent Rate Cut, Other Major Economies Follow

Washington, D.C. (AHN) - Federal Reserve Chairman Ben Bernanke ordered Wednesday an emergency rate cut of half a percentage point to 1.5 percent in an effort to address the global credit crunch gripping major economies, including the U.S.

European and other major central banks followed the move of the Fed by ordering a cut in their own benchmark interest rates. Among those which announced rate reductions are the Bank of England, the European Central Bank and the central banks of Canada, Sweden and Switzerland. The ECB reduced its benchmark rate to 3.75 percent from 4.25 percent.

The Fed, in a statement, said, "The committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures."

Following the coordinated move, initial positive effect was felt in the stock markets. The European markets reduced their heavy losses, while index futures pointed to the Standard & Poor's 500 stock index may rise 2 percent at the opening of trading at the New York Stock Exchange.

But economists are wary if the benchmark rate cuts would be sufficient to stem the sharp decline in share prices since the Dow Jones Industrial Average went down 1,400 in the last five days despite the passage of the $700-billion bank bailout law.

The Bank of Japan did not join the coordinated rate cut, but supported the move. It explained the country's interest rates are already low enough.