Bumper US interest rate cut aims to boost flagging economy US interest rates have been slashed for the first time in more than four years – and by more than many expected – amid fears the world’s largest economy is flagging, writes our business reporter Sarah Taaffe-Maguire. Not since the early days of the COVID-19 pandemic has there been a drop in the cost of US borrowing as its central bank, the Federal Reserve, brought interest rates down by 0.5 percentage points on Wednesday evening. The monetary regulator, known as the Fed, brought the interest rates down to 4.75% to 5%.

This strategy, known as “tightening,” aims to slow down economic activity and reduce inflation. The US Federal Reserve (Fed) has been actively engaged in raising interest rates to combat inflation. The Fed’s primary tool for managing the economy is the federal funds rate, which is the interest rate at which banks lend reserves to each other overnight.

The Bank of England is expected to raise interest rates again, but the extent of the increase is uncertain. The Bank of England’s Monetary Policy Committee (MPC) is facing a difficult balancing act. They must balance the need to control inflation with the risk of triggering a recession. The UK economy is currently facing a number of challenges, including high inflation, rising energy prices, and a weakening pound.

Lower exports can slow inflation, meaning the Bank could be more likely to cut.