The Fed has made the biggest rate cut since 1984.

The Federal Reserve has today cut interest rates to 3.5% – a shock 75 basis points, the highest cut in more than 20 years.

The Fed, the US central bank, slashed rates as fears grow over an impending US recession generated by the US housing market crisis and increased unemployment.

It is biggest US rate change since October 1984, when they were slashed 175 basis points.

In a statement, the Fed said it had taken the action: “In view of a weakening of the economic outlook and increasing downside risks to growth.

“While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. 

“Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

The Fed’s announcement came as a complete surprise, particularly as it was made a week before its policy meeting scheduled for 30 January.

The last time it made emergency cuts was in 2001 – the first on 3 January in the wake of the dotcom crash, followed by another on 17 September following the 9/11 attacks.

Despite the rate slash, US shares opened lower this morning – during early trading the Dow Jones stock index declined 2.9%, or 351.1 points, and the tech-based Nasdaq fell 2.6%. European indexes have rebounded, however remain volatile.

By Natasha Piscitelli