Fed is expected to cut interest rates again today

WASHINGTON – Federal Reserve policymakers are expected to slash a key interest rate by a half-point, pushing the federal funds rate down to 1 percent, as they wrap up a two-day meeting Wednesday.

The worst financial crisis in 70 years has forced the Fed to employ all the weapons in its arsenal — including cutting interest rates to near historic lows — to try to keep the country from plunging into a deep recession.

A new cut would put the Fed's target for the interest banks charge each other on overnight lows down at level last seen during a 12-month period from June 2003 to June 2004. Before that period, the funds rate had not been that low in 45 years, since Dwight Eisenhower was president.

Economists believe the Fed is prepared to cut rates that low because of the rising fears that the financial turmoil of the past two months is raising the specter of a deep and prolonged recession.

"The Fed is going to send a very strong signal that they will do whatever it takes to restore stability to the economy," predicted Mark Zandi, chief economist at Moody's Economy.com.

The prospect of another sizable rate cut, coming just three weeks a half-point move that was coordinate with a number of countries, sent the stock market soaring on Tuesday, pushing the Dow Jones industrial average up by 889.35 points, its second-biggest point gain in history.

Even if the Fed does fulfill the desires of investors with its action Wednesday, it is not likely to end the turbulence on Wall Street. Analysts are cautioning to be prepared for more stomach-churning days ahead as investors struggle to deal with a severe credit crisis and what could be the worst recession in at least two decades.

A half-point rate cut on Wednesday would push borrowing costs lower for millions of consumer and business loans with banks moving quickly to match the Fed's action by lowering their benchmark prime lending rate from 4.5 percent, where it has been for the past three weeks, down to 4 percent.

The Fed is hoping that the sharply lower rates will help boost economic growth going forward. The government will release its first look at economic activity in the July-September quarter on Thursday and that is expected to show that the gross domestic product shrank at a rate of 0.5 percent in the third quarter.

Many analysts believe a rate cut in the United States will be followed by cuts in other major economies as central banks around the world try to inject confidence into a badly shaken financial system.

Analysts are split, however, on whether a Fed rate move this week will be followed by another rate cut at the central bank's last meeting of the year on Dec. 16.

Some analysts think the Fed could drive the funds rate as low as 0.5 percent and might even go to zero, which the Bank of Japan did in an effort to combat a decade-long bout of malaise in the 1990s caused by a real estate bust in that country.

Other analysts believe the Fed will be content to lower the funds rate to 1 percent and leave it there, partly because pushing it any lower would remove any cushion to cut the rate further should the economy fail to respond and the downturn worsen.