Fed cuts key rate by quarter point, as expected

The Federal Reserve on Thursday cut its federal funds rate to 2%, the latest in a series of moves to fire up a lagging US economy.

The Federal Reserve on Thursday cut its federal funds rate by a quarter point to 2.0 per cent in the latest in a series of moves to fire up a lagging US economy.

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The Federal Open Market Committee said financial markets remain under stress and that there is considerable uncertainty about the inflation outlook.

The central bank has slashed its key lending rate by 3.25 percentage points since September in the face of a US housing meltdown and global credit squeeze.

"Recent information indicates that economic activity remains weak," the FOMC said. "Household and business spending has been subdued and labour markets have softened. Financial markets remain under considerable stress, tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."

The vote was 8-2 with two dissenting members calling for no change in rates. The central bank said it also decided to lower its discount rate for direct bank loans by a quarter point to 2.25 per cent. The panel headed by Fed chairman Ben Bernanke appeared to leave its options open for future actions.

Some analysts said the Fed has achieved a modest victory in easing a global credit squeeze and possibly averting a severe downturn in the world's biggest economy after slashing rates by 3.