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The Federal Reserve Cuts Rates to Calm Financial Markets

The central bank moved after stock prices around the world dropped on worries about the United States economy. Transcript of radio broadcast:

This is IN THE NEWS in VOA Special English.

News of the American central bank’s interest rate cut this week was the top story in financial markets around the world. In a surprise announcement Tuesday, the Federal Reserve lowered the federal funds rate to three and one-half percent. This is the rate that banks charge each other to borrow money overnight.

The announcement came one day after foreign stock markets suffered heavy losses. Losses between three and seven percent were reported in Japan, China, India, South Korea and across Europe.

Financial markets dropped as concern grew that an American recession could hurt the economies in countries that trade with the United States. Many markets suffered losses again Tuesday before the Fed lowered the interest rate.

Several foreign markets regained some of their losses in the days following the American interest rate cut. Stock prices rose almost eleven percent in Hong Kong on Wednesday. The main index in Mumbai, India increased more than seven percent. European and Asian markets also closed higher on Friday. Tokyo's Nikkei Index gained more than four percent. Share prices were also higher in Shanghai, Manila, Seoul, Kuala Lumpur and Bangkok.

Lower interest rates make it easier for businesses and people to borrow money for purchases and other activities that help the economy.

Financial experts expect the Federal Reserve will cut the interest rate another quarter of a percentage point at its official meeting next week. That would bring the federal funds rate to three and one-quarter percent.

As concerns of a possible recession in the United States grow, the Bush administration and congressional leaders agreed on an economic growth plan.

In Davos, Switzerland, political, economic and government leaders are attending the yearly meeting of the World Economic Forum. More than two thousand economic policy-makers are discussing the world's economic and social problems.

Opinion has been mixed on the future of the financial situation in the United States and how it will affect the rest of the world. Secretary of State Condoleezza Rice told the Forum the American economy has a strong structure and would remain an engine of growth.

But others are not so sure. Joseph Stiglitz is an economics professor at Columbia University in New York City and a winner of the Nobel Prize in economics. He said the current market trouble is far from over.

Bill Gates, the head of Microsoft, also spoke at the World Economic Forum. He said capitalism as an economic system may need some changes. Mister Gates proposed an idea he calls creative capitalism. He called on companies to think more about how their products can help society. Mister Gates said he believes capitalism should help the poor as well as the rich.

And that's IN THE NEWS in VOA Special English, written by Brianna Blake. I’m Steve Ember.