The Fed jumped into the action. After widespread discussions about the current economic situation in the United States possibly facing recession, the Federal Reserve cut the interest rates. The reduction constitutes a drop from 4.25 down to 3.5 per cent. Before Tuesday's move, the Fed had cut interest rates three times, at first in September by a half-point and then by smaller quarter-point moves in October and December. The explanation by the Fed states that the decision came to effect as a response of "a weakening of the economic outlook and increasing downside risks to growth." Basically, there have raised concerns that weakness in the world's largest economy, the one of the United States, was spreading worldwide. The consequent issue is therefore whether it will work. The answer lies in the unique character of the American recession that is likely caused by two major triggers. The first one is bursting of the U. S. house price bubble and the other one is connected with the credit bubble. According to most economists, the move of the Fed won't solve the first problem. The imbalance between supply and demand in the U. S. is just too extreme. The second crisis isn't believed to be retrieved easily by the recent rate cut as well. Other specialists defend the bold action of the Federal Reserve. They affirm the Fed helped this way the start of the latest housing boom. Moreover, the policy was motivated not by the desire to achieve any particular level of asset prices, but, as claimed "rather by the Federal Reserve's assessment of how changes in asset prices were affecting the forecast of growth and inflation." No matter what opinions belong to certain economic specialists, the final effect will be interesting for much wider public. Consequences will be seen and comprehended in the future regardless of those currently predicted. The American citizens definitely have something to look forward to.
Edited by: Lydia Jasenska
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