WASHINGTON – Oct. 9, 2008 – In an unusual coordinated move, the Federal Reserve and other major central banks from around the world slashed interest rates Wednesday to keep an escalating financial crisis from becoming a global economic meltdown.
The Fed cut its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England reduced its rate by half a point to 4.5 percent, and the European Central Bank sliced its rate by half a point to 3.75 percent.
The central banks of China, Canada, Sweden, and Switzerland also cut rates. The Bank of Japan said it strongly supported the actions.
“The recent intensification of the financial crisis has augmented the downside risks to growth,” the Fed said in explaining the coordinated action, the latest in a series of bold moves intended to spur lending and revive the global economy.
The Fed’s action will reduce borrowing costs almost immediately for U.S. bank customers whose home equity and other floating-rate loans are tied to the prime interest rate. Bank of America, Wells Fargo, and other banks cut their prime rate by half a point to 4.5 percent after the Fed announcement.
White House spokesman Tony Fratto welcomed the cooperation between the Fed and other countries’ central banks to battle the crisis. “It’s important and helpful that central banks are working in a coordinated way to deal with stress in the financial system,” Fratto said.
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