Author`s name Alex Naumov

Feds may cut key interest rate to 2.25 later this year

UBS now sees the United States in a recession in the first half of 2008, as the persistent housing slump and financial market woes have spread into the broader economy, the investment bank said on Tuesday.

UBS also revised its forecast on how far the Federal Reserve would slash the key federal funds target rate to 2.25 percent later this year in a bid to revive growth, Reuters reports.

The Federal Reserve announced Tuesday it has cut a key interest rate by three-fourths of a percentage point to steady the economy as Treasury Secretary Henry Paulson said Congress and the administration need to agree quickly on a package of tax cuts.

"Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible," Paulson said in remarks to the U.S. Chamber of Commerce.

The Fed's decision to slash the federal funds rate — the interest that banks charge each other on overnight loans — was the biggest single cut of its kind in recent memory. The Fed cut the rate to 3.5 percent from 4.25 percent — a move that represented the most dramatic signal it could can send of its concern about a recession. It said that "appreciable downside risks to growth remain" and held out the prospect of further rate cuts.

The rush of developments came on the same day that Democratic and Republican leaders in Congress were to meet with President Bush at the White House for talks on economic stimulus legislation. Such a measure presumably would involve tax rebates, business tax cuts and funding for a Democratic-led call for additional food stamp and employment aid.

Paulson said he was optimistic the administration and Congress could find common ground and "get this done long before winter turns to spring." Bush and the congressional leaders are looking for quick agreement on how to pump as much as $150 billion into the ailing economy to stave off a recession. The president last Friday put forward the broad outlines of a stimulus plan that would include tax cuts for individuals and businesses, the AP reports.

Source: agencies