Fed cuts rates to 45-yr lows

The Federal Reserve on Wednesday trimmed US interest rates a quarter percentage point to 45-year lows, citing recent hopeful economic signs as it offered a less potent growth tonic than markets had hoped.

Repeating its concern about risks of a further fall in inflation, the central bank's Federal Open Market Committee voted 11-1 to lower its bellwether federal funds rate for overnight loans between banks to 1 per cent.

One policy-maker San Francisco Fed bank President Robert Parry dissented in favour of a bolder cut of a half percentage point. Wall Street analysts had been split on the likely size of the expected reduction and bond prices tumbled on the news that the Fed had opted for a smaller cut.

Economists said policy-makers had at least two reasons for a smaller decrease a brightening outlook for second-half growth and a dwindling stock of rate-cutting power.

"Recent signs point to a firming in spending, markedly improved financial conditions and labour and product markets that are stabilizing," the FOMC said in its statement. "The economy, nonetheless, has yet to exhibit sustainable growth."

Disappointment landed hard on stocks and sparked the biggest treasury bond sell-off in six months. Yields spiked, a trend that could raise costs for such loans as mortgages and undo much of the Fed's intended easing.