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World’s central banks coordinate rate cuts
And there was no shortage of gloomy economic data for investors and traders, despite the international rate cut.
Britain and Spain became the latest countries to roll out major bailout plans for their banks, dragged down by their investments in the U.S. mortgage markets and by overheated housing markets at home. British Prime Minister Gordon Brown served up a $437 billion rescue package to “restructure the banking system,” including $87 billion for the government to purchase ownership stakes in Barclays, Lloyds TSB and six other British lenders.
“This is not a time for conventional thinking or outdated dogma, but for the fresh and innovative intervention that gets to the heart of the problem,” Mr. Brown told reporters.
There was fresh evidence the U.S. consumer the prime engine of growth for the economy in recent years has pulled back in the face of bad news on the housing, credit employment and investment fronts.
Leading retailers reported sluggish sales for September, with market leaders such as J.C. Penney Co., Kohl’s and Target reporting disappointing traffic and the need for deep price cuts just to attract shoppers. Only discount giants Wal-Mart and Costco reported relatively strong results for the month.
“Consumers are shell-shocked right now, and I don’t think they’ve got the ability to spend,” Stephanie Hoff, an analyst at Edward Jones in St. Louis, told Bloomberg News. “Usually if sales are weak for this time of year, it doesn’t bode well for the holiday.”
Iceland, whose small economy has become a global poster child for the difficulties posed by the credit crunch, was forced to drop plans to nationalize the country’s second largest bank, placing failing Landsbanki in receivership instead. With confidence evaporating in the country’s financial system, Iceland officials also said they were abandoning a doomed effort to defend the value of the krona, the country’s currency.
The move by the Federal Reserve and other central banks was a rare instance of international cooperation on lending rates. Federal Reserve Board Chairman Ben S. Bernanke had hinted broadly in a Tuesday speech that the U.S. central bank was preparing its first rate cut since late April, but many had assumed the move would come at the board’s scheduled Oct. 28-29 meeting.
The “Fed funds rate” was cut from 2 percent to 1.5 percent, with major U.S. banks like Wells Fargo and Bank of America almost immediately cutting the prime rate given to top-quality borrowers from 5 percent to 4.5 percent.
In Europe, where continental leaders have scrambled to coordinate their response to the economic implosion, the European Central Bank cut its key rate from 4.25 percent to 3.75 percent, while the Bank of England also sliced a half-percentage point off its leading rate to 4.5 percent.
The Bank of Canada and Sweden’s Riksbank also cut their benchmark rate by 0.5 percent. The Bank of Japan, which already has historically low lending rates to boost the long-suffering domestic economy, said it “supported” the global rate cut but left its benchmark rate alone.
About the Author
Raised in Northern Virginia, David R. Sands received an undergraduate degree from the University of Virginia and a master’s degree from the Fletcher School of Law and Diplomacy at Tufts University. He worked as a reporter for several Washington-area business publications before joining The Washington Times.
At The Times, Mr. Sands has covered numerous beats, including international trade, banking, politics ...
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