The Federal Reserve has slashed interest rates to one per cent in a bid to kick-start the ailing economy and restore confidence to the financial markets.

In a post-meeting statement, the group said the move was prompted by falls in consumer spending as rising prices and debt repayments squeeze family finances.

"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the statement read.

Consumers struggling to pay off their arrears are likely to welcome the move, which could result in lower repayments.

It seems economists saw the rate cut coming. USA Today questioned a number of experts earlier this week and 82 per cent said they expected to see a reduction.

The Federal Reserve's move is expected to be followed by similar base rate cuts in the UK and Europe as economies across the Atlantic suffer the effects of the financial downturn.

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