US interest rates could be 2.5% by April

by Richard Kilner

Story link: US interest rates could be 2.5% by April

Economists are forecasting that American interest rates could fall as low as 2.5% by early spring.

In the wake of plunging shares across the globe, the Federal Reserve recently slashed rates by 75 basis points to 3.5%, in an effort to reinvigorate the markets.

The move appears to have had some impact in bolstering confidence, but is not by itself enough to stave off fears about the US economy.

The Dow Jones fell by over 1%, finishing on 11,971.19.

The FTSE finished up by 162 points at 5,740.1, though that marks only halfway to recouping the 323 point loss suffered on Monday.

Global Insight’s chief US economist, Nigel Gault, believes that the prospect of a recession in the US will force the Federal Reserve to continue cutting rates.

Gault has stated his belief that by April interest rates will have been cut by 1%, or 100 basis points.

According to Merrill Lynch, the US economy is already undergoing a recession.

The significant rate slashing by the Federal Reserve has been seen by some as a sign of panic at an impending economic crisis.

The Royal Bank of Scotland’s market strategist, Neil Parker, has said that he believes the rate cut in the US will lead to a short-term boost in confidence but will ultimately not succeed in staving off long-term difficulties.

The US rate cut was the first time since 2001 that rates have been altered between meetings, and the largest since 1990.

It coincides with President George W Bush’s package of £70bn tax cuts unveiled earlier.