The US Federal Reserve has lowered its target for the federal funds rate by a half-point to 3 per cent.

The Federal Open Market Committee said financial markets remained under considerable stress, and credit has tightened further for some businesses and households. 

It added that recent information indicated a deepening of the housing contraction as well as some softening in labour markets.

"We expect inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully," the committee said in a statement issued to the media.

The committee felt that the policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. It, however, added that downside risks to growth remain. 

The Federal Reserve's move comes a week after it trimmed 0.75 per cent of the fund rate owing to concerns that the US economy was headed towards a recession.