This afternoon, the Federal Reserve announced the seventh rate cut since it began slashing interest rates last September.  It lowered both the benchmark federal funds rate as well as the discount rate by 25 basis points to 2% and 2.25% respectively.

The Commerce Department also released economic data which showed that GDP had slowed in the first quarter to a 0.6% annual growth rate.  In a press release, the Fed acknowledged the worsening of the economy despite it’s recent efforts.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

In a sign that the credit crisis may be easing somewhat and that inflation remains a concern, it was the smallest rate cut the Fed instituted this year.  While core inflation has slowed recently, energy and food prices have continued to skyrocket.

Some economists have been critical of the Fed for lowering interest rates to the point that short term Treasury yields are now below the rate of inflation which causes a disincentive to saving.  Still, many analysts believe that this will probably be the last rate cut we see for some time unless credit conditions worsen again.

The Fed will most likely wait and see what impact the economic stimulus package has on consumer spending before making any further moves.  Rebate check began going out to households earlier this week.

The Euro has begun to lose a small amount of value against the dollar after its record high of $1.6019 earlier this week.  The euro traded at $1.5685 late yesterday.

The dollar gained a small bit of value against Japanese currency.  The dollar is worth 104.63 yen.  This is up from the value of 104.22 yen earlier this week.

The British pound is now trading at 1.9763 dollars.  Swiss francs are trading at 1.0349 dollars.

The Euro has remained strong against the dollar for several years, with its strength increasing during the US rate cuts made by the Federal Reserve.  Since September of last year, the US Federal Open Market Committee has reduced the discount rate and the federal funds rate repeatedly.  This has opened the door for inflation problems and weakened the strength of the dollar.

The European Central Bank has primarily focused on keeping inflation under control as much as possible, and has chosen to keep their interest rates the same.  The primary focus of the US Federal Reserve Board has been to stimulate economic growth and increase liquidity in the markets to combat recession and a major credit crunch.

Experts speculate that the Federal Reserve will make at least one more modest rate cut in light of the inflation problem in the US.  With inflation creating pressure on the FOMC, rate cuts will continue to be a difficult decision.

Meanwhile, according to the University of Michigan, consumer sentiment has decreased to its lowest point in nearly three decades.  Gas and grocery prices are steadily increasing nationwide.  The unemployment rate has risen beyond 5%, nearing 8 million people without jobs.

The economic stimulus package will be sent out early next week, and eligible consumers should see the checks for an amount between $300-$600 per person.  Hopefully, the plan will work to give the economy a small boost over the course of the year.

Jean-Claude Trichet, president of the European Central Bank (ECB) gave a press conference this morning after deciding not to cut the key interest rates because of inflation concerns.

In his statement to the press, Trichet stated,

The latest information has confirmed the existence of strong short-term upward pressure on inflation. In fact, we are experiencing a rather protracted period of temporarily high annual rates of inflation, resulting mainly from increases in energy and food prices. The latest information also clearly confirms our assessment of prevailing upside risks to price stability over the medium term, in a context of continuing very vigorous money and credit growth. The economic fundamentals of the euro area are sound.

Trichet seems confident in the real GDP growth of the Euro-economy, and feels strongly that maintaining price stability should remain the main focus.  He believes that while there is uncertainty and turmoil in the financial markets, this approach will help maintain the European economy.  He also noted that there is an unusually high level of economic uncertainty.

Some experts say that the ECB could afford at least a small rate cut.  They have been incredibly reluctant to do so.  Over the last twelve months, euro consumer prices have gone up 3.5%.  The euro is currently trading at 1.5825 dollars.

The ECB voted to keep the interest rates high, rather than take the approach of the United States Federal Reserve and continuously slash rates.

There is a small chance of a global recession occurring at this point.  Monetary policy makers all over the world are now under pressure to make the right moves to help their regional economies.  It is no longer a question of whether or not the United States will pull through “tough times,” but a question of whether or not a number of nations will be able to avoid recession.