American Economy: Strolling over the troubled waters

Against a backdrop of growing concern about the recession, the central bank of the United States, the Federal Reserve unexpectedly, out of the blue, slashed a key interest rate by three – quarters of a percentage point, from 4.25 percent down to 3.5 percent on Tuesday January 22nd after Federal Reserve Chairman Ben Bernanke and his team approved the huge rate cut after an emergency video conference on Monday night.

The action was approved on an 8-1 vote and this dramatic rate cut has raised concerns about the weakness in the world’s largest economy and has stirred panic all over the world as many analysts had predicted that the US economy could fall into a recession and drag down the rest of the world with it. And their panics and predictions are justifiable because the Fed has honestly stated some harsh economic realities hitting the world’s number one economy in its statement.

For instance, the fed in its statement has candidly stated that an appreciable downside risks to growth remain, and considering so it pledged to act in timely manner to curd the risk facing the economy.

The Fed signaled that further rate cuts were likely, possibly as soon as their next meeting on Jan. 29-30, if the American economic picture looks murky. And the situation is likely to be murkier because a macroeconomic policy takes time to jump from paper policies and act in the real world.

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