US interest rate slashed to nearly zero

The US Federal Reserve slashed its key interest rate from 1% to a range of between zero and 0.25% in a move to combat a prolonged recession.

Many analysts had expected the central bank to make a smaller cut to 0.5%.

Federal reserve chairman Ben Bernanke and his colleagues pledged to use “all available tools” as they struggle to contain a financial crisis that is the worst since the 1930s and a recession that is already the longest in 25 years.

The Fed also made clear that it intends to keep the funds rate at extremely low levels.

“The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” the central bank’s panel that sets interest rates said in a statement.

The decision was welcomed on Wall Street, with the Dow Jones closing up 360.4 points, or 4.2% at 8,924.9.

President-elect Barack Obama said that his administration would also be doing its bit to stimulate the economy because the central bank could no longer use its main tool.

“We are running out of the traditional ammunition that is used in a recession, which is to lower interest rates,” he said.

“That’s why the economic recovery plan is so absolutely critical.”