UPDATE: Feds Leave Key Rate Unchanged

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CBNNews.com - NEW YORK - The Federal Reserve chose not to cut a key interest rate, while acknowleding the "strains in financial markets have increased significantly and labor markets have weakened further."

Meanwhile, stocks continued to slide on Wall Street Tuesday as investors worried about the financial status of the world's largest insurance company.

Some ratings companies have reduced their current forecasts for the troubled Wall Street giant American International Group, Inc. Market watchers are worried that if AIG should fail, the financial effects would be felt worldwide.

Cutting Interest Rates?

As the global credit crunch continues to target financial megagiants, analysts are predicting the Federal Reserve could reduce interest rates.

Economists are divided over whether the U.S. Central Bank may decide to cut a key rate on Tuesday. The Fed could begin reducing rates over the next several weeks if the markets do not show stability.

On Monday, Wall Street had its worst day in seven years with the Dow Jones industrial average tumbling by 504 points.

"Given the meltdown in markets, a rate cut is becoming fairly possible," David Wyss, chief economist at Standard & Poor's in New York, said in a comment echoed by other economists.

Maintaining the Overall Market Health

After the demise of several financial megagiants, many economists have begun to rethink their approaches about how to get the economy back to stability.

When no buyer stepped up to help Lehman Brothers Monday, Treasury Secretary Henry Paulson said the federal government would not step in to help.  President Bush also said that federal policymakers would work "to help the financial system as a whole."

Speaking to reporters at the White House, Paulson insisted that the administration had made the right decision.

"I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers," Paulson said Monday.

Source: The Associated Press

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