US heads for recession as Fed ‘pushes on a string’

The Fed - along with other central banks - is to pump money into the banking system in order to ease the credit squeeze. How exactly will this work? And can it really help?

Stockmarkets had a roller-coaster week. Investors had been hoping for aggressive action from the Federal Reserve to shore up a US economy hit by the credit squeeze and the deepening housing slump.

But on Tuesday the US central bank only produced a quarter-point interest-rate cut to 4.25%, rather than the half-point cut many had hoped for. It said this should promote moderate growth "over time", while warning that "some inflation risks remain", suggesting that no more relief would be forthcoming. Anxious investors wiped 2.5% off the S&P 500 after the Fed's move.

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