After the most eventful and creative six weeks in the history of central banking, a half-point interest rate cut by the Federal Reserve on Wednesday October 29th was almost anti-climactic. Nonetheless, it was an important strike at the deepening recessionary forces surrounding the American economy, and the Fed made it more significant by jettisoning concerns about inflation from the statement accompanying its action.
The Fed also announced new dollar swap lines with four big emerging-market central banks to help them cope with shortages of dollars that are roiling their financial markets. It is a sign of how the locus of the crisis has shifted from developed to emerging markets, requiring a corresponding shift in policy. The swaps will complement a new $100 billion liquidity facility announced by the International Monetary Fund that countries in solid macroeconomic shape can access without the usual conditionality.
Within America the financial crisis is showing signs of easing, but the economic crisis is only just starting, as the Fed broadly acknowledged. "The pace of economic activity appears to have slowed markedly," the Federal Open Market Committee, the central bank's policy panel, said in lowering the target on the federal funds rate to 1% from 1.5%. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint."