Surprise US rate cut

The Federal Reserve has cut US interest rates by 0.5 percentage points, taking official interest rates in the states to 4.5 per cent.

The move, made outside the regular meetings of the Federal Reserve's rate-setting committee, surprised all and has seen the US sharemarket surge taking other bourses with it around the world, including the ASX. The Dow Jones climbed 4 per cent while the NASDAQ jumped 8 per cent.

The Fed gave declining business investment and profits as the reasons for the cut.

US rates are now half a percent lower than Australia's which were cut to 5 per cent in early April. While it was thought we might have seen the end of rate cuts here for a while at that time, the US cut gives the Reserve Bank more room to cut again should signs of economic deterioration strengthen over the the next month or so.