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| Version 5 | Version 6 |
|---|---|
| Fed considers interest rate cut | |
| (about 3 hours later) | |
| US interest rate-setters are gathering to decide whether to cut rates for the first time since mid-2006. | US interest rate-setters are gathering to decide whether to cut rates for the first time since mid-2006. |
| Most people expect the Federal Reserve to cut rates to prevent a housing market downturn and the "credit crunch" from severely denting the economy. | Most people expect the Federal Reserve to cut rates to prevent a housing market downturn and the "credit crunch" from severely denting the economy. |
| By making money cheaper to borrow, people would spend and invest more, revitalising the economy, they say. | By making money cheaper to borrow, people would spend and invest more, revitalising the economy, they say. |
| But some feel that the Fed must leave rates unchanged at 5.25% in order to focus on controlling inflation. | But some feel that the Fed must leave rates unchanged at 5.25% in order to focus on controlling inflation. |
| A reduction in rates by 25 or even 50 basis points would fuel inflation and lead to the "cheap money" conditions that have brought boom-and-bust to the property sector, they argue. | A reduction in rates by 25 or even 50 basis points would fuel inflation and lead to the "cheap money" conditions that have brought boom-and-bust to the property sector, they argue. |
| Inflation figures | Inflation figures |
| But there was better news for those concerned about inflation with the Producer Prices Index (PPI) for August showing a bigger than expected fall. | But there was better news for those concerned about inflation with the Producer Prices Index (PPI) for August showing a bigger than expected fall. |
| The Bureau of Labor Statistics said that the measure of the prices paid to producers of goods and services in the US fell by 1.4%, which was the biggest fall since October 2006. | The Bureau of Labor Statistics said that the measure of the prices paid to producers of goods and services in the US fell by 1.4%, which was the biggest fall since October 2006. |
| "The August PPI was good news," said Gary Thayer, chief economist at AG Edwards and Sons in St. Louis. | "The August PPI was good news," said Gary Thayer, chief economist at AG Edwards and Sons in St. Louis. |
| "There was a decline in energy prices that helped pull the overall index down and core inflation looks relatively modest," he added. | "There was a decline in energy prices that helped pull the overall index down and core inflation looks relatively modest," he added. |
| 'Won't deliver' | 'Won't deliver' |
| By cutting rates the Fed would be boosting the US economy by making it cheaper to borrow money Q&A: US interest rate decision class="" href="/1/hi/talking_point/6995266.stm">Have you been affected by the mortgage crisis? | |
| The Fed is set to make its announcement at 1415 EDT (1815 GMT) after its one-day policy meeting. | The Fed is set to make its announcement at 1415 EDT (1815 GMT) after its one-day policy meeting. |
| The market may be disappointed by the announcement from Fed boss Ben Bernanke, said Bernie Schaeffer at Schaeffer's Investment Research. | The market may be disappointed by the announcement from Fed boss Ben Bernanke, said Bernie Schaeffer at Schaeffer's Investment Research. |
| "Expectations for a Fed bailout are running high. It is becoming increasingly clear to me that a minimum of a 50-point cut is needed and that Bernanke is not likely to deliver on it," he said. | "Expectations for a Fed bailout are running high. It is becoming increasingly clear to me that a minimum of a 50-point cut is needed and that Bernanke is not likely to deliver on it," he said. |
| There is also anticipation over what Mr Bernanke will say in the Fed's economic statement. | There is also anticipation over what Mr Bernanke will say in the Fed's economic statement. |
| The impending decision, along with the imminent release of third-quarter results from a string of investment bank, has made traders cautious. | The impending decision, along with the imminent release of third-quarter results from a string of investment bank, has made traders cautious. |
| But the first of those results, from Lehman Brothers, came in better than expected, suggesting the banks have not been hit as hard as had been thought. | But the first of those results, from Lehman Brothers, came in better than expected, suggesting the banks have not been hit as hard as had been thought. |
| The Fed started raising rates from their historic low of 1% back in June 2004 to put the brakes on a US economy that was showing signs of overheating. | The Fed started raising rates from their historic low of 1% back in June 2004 to put the brakes on a US economy that was showing signs of overheating. |
| They have been on hold at 5.25% since mid-2006 after 17 consecutive rises. | They have been on hold at 5.25% since mid-2006 after 17 consecutive rises. |