Further US rate cuts possible; FBI investigates senior bankers

by Gill Montia

Story link: Further US rate cuts possible; FBI investigates senior bankers

Yesterday’s decision by the US Federal Reserve to cut interest rates by 0.5% was well received by Wall Street, with the Dow Jones industrial average rising sharply on the news.

This second rate cut in eight days, to 3%, was accompanied by the news that further reductions could be on the cards.

In a statement, the central bank said: “Financial markets remain under considerable stress and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labour markets.”

Despite lower interest rates, the chances of a recession in the US that could spell calamity for economies worldwide is still the subject of considerable anxiety.

Official growth figures show that in the fourth-quarter of 2007, the US economy grew by 0.6%, its slowest rate for five years.

The figure was less than half analysts’ expectations and puts growth for the whole of last year at 2.5%, compared with 2.6% in 2006.

Meanwhile, the country’s Federal Bureau of Investigation (FBI) has reported that it is investigating senior banking executives for insider dealing and fraud.

The action forms part of a criminal inquiry into the sub-prime mortgage crisis and according to Neil Power, the head of the FBI’s economic crimes unit, it will be the most far-reaching criminal investigation into the practices of the mortgage industry so far.

As such, it will focus on accounting fraud connected to the securitisation of the sub-prime loans that were sold to the investment banks.