America raises recession alarm as London escapes early freefall
The US Federal Reserve promised to keep interest rates in the world's largest economy at rock-bottom levels well into 2013, in a signal that it is increasingly worried about a double-dip recession.
The central bank's declaration cheered investors who had been selling stocks relentlessly for the best part of a week, fearful that policy makers on both sides of the Atlantic have run out of ammunition to stimulate faltering economies. A big rally on Wall Street was the result, with the Dow Jones Industrial Average of US shares recovering 430 of the 635 points it lost in the previous session.
The Fed has held official US interest rates at zero since December 2008, but yesterday was the first time it has set a timeline for keeping monetary policy that easy, and it had immediate effects across the financial markets. Interest rates on some US government bonds, whose rise and fall is reflected in borrowing costs for millions of American homebuyers and businesses, crashed to never-before-seen lows.
"Downside risks to the economic outlook have increased," the Fed conceded last night, justifying its move, which came after a fractious meeting of its interest rate-setting committee. Three of the ten members dissented.
Traders expect the newfound optimism in the US to radiate to other world stock markets this morning, even if no one was making predictions on how long it might last. Days of selling pressure has pushed some markets down almost 20 per cent from their recent peaks – a decline that would qualify as a "bear market".
