The US central bank decided to lower its target for the federal funds rate 50 basis points to 1.5 percent. It also approved a 50-basis-point decrease in the discount rate to 1.75 percent.

It took the actions in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures, said the Fed in a statement.

In Europe, the Bank of England slashed its rate by half a point to 4.5 percent and the European Central Bank cut its rate by half a point to 3.75 percent.

The central banks of China, Canada, Sweden, and Switzerland also took similar actions. The Bank of Japan said it strongly supported these policy actions.

"Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets," said the central banks in a joint statement.

"Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices," they noted. "Inflation expectations are diminishing and remain anchored to price stability."

"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," said the central banks.

The global stock markets tumbled Tuesday amid increasing anxiety in global financial markets.

Federal Reserve Chairman Ben Bernanke warned on Tuesday that outlook of US economic growth has worsened. "Economic activity is likely to be subdued during the remainder of this year and into next year," Bernanke said.

"The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth," he warned.

The Fed also said on Wednesday that incoming economic data suggest that the pace of economic activity has slowed "markedly" in recent months.

"Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit," said the US central bank.

Inflation has been high, but the Fed believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

The Fed vowed it will "monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability."