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The Federal Reserve cut a key interest rate by
a quarter-point Wednesday, a smaller move than the aggressive
easing it undertook earlier this year. There were signs the Fed may
believe it has done enough to prevent a deep recession.

      The Fed action, after a two-day meeting, pushed the federal
funds rate down to 2 percent, the lowest level since late 2004. It
marked the seventh rate cut by the central bank since it began
easing credit conditions last September to combat the growing
threat of a recession brought on by a severe housing slump and
credit crisis.

      Commercial banks immediately announced that they were cutting
their prime lending rate to 5 percent. That will mean cheaper
credit for the millions of business and consumer loans tied to the
prime.

      The Fed move, which was in line with expectations, sent the Dow
Jones industrial average momentarily soaring above 13,000 for the
first time since January. But the Dow quickly gave up those gains
as traders began to wonder whether the Fed was closing the door to
further rate cuts.


      Many private economists said they believed a Fed statement was
signaling that the central bank may be through cutting rates unless
the economy weakens much more than now expected.


      "They are saying that unless we are surprised by further
weakness, this is it," said David Jones, chief economist at DMJ
Advisors.


      Sung Won Sohn, an economics professor at California State
University, said, "The Fed is telling us that this easing cycle is
coming to an end fairly soon."


      Analysts said the central bank seemed to be balanced between
worries about economic weakness and concerns that inflation
pressures are increasing. The Fed noted that it had done quite a
bit already.


      "The substantial easing of monetary policy to date, combined
with ongoing measures to foster market liquidity, should help to
promote moderate growth over time and to mitigate risks to economic
activity," Federal Reserve Chairman Ben Bernanke and his
colleagues said in their statement.


      There were two dissents from the move. Richard Fisher, president
of the Dallas regional Fed bank, and Charles Plosser, head of the
Philadelphia Fed, argued for no change in rates. Both officials had
also dissented at the March 18 meeting when the Fed cut rates by
three-fourths point.


      The central bank is walking a tightrope, trying to jump-start
economic growth while also confronting the risk that if it overdoes
the credit easing it could make inflation worse down the road.


      Many economists believe the country has fallen into a recession.
However, the government reported Wednesday that the overall
economy, as measured by the gross domestic product, managed to eke
out a 0.6 percent growth rate in the January-March quarter, barely
in positive territory.


      On the overall economy, the Fed's statement said, "Financial
markets remain under considerable stress and tight credit
conditions and deepening housing contractions are likely to weigh
on economic growth over the next few quarters."


      While officials said they expected inflation to moderate in
coming months, they also said "uncertainty about the inflation
outlook remains high."


      The quarter-point move followed a string of more aggressive rate
cuts ranging from a half-point to three-fourths-point in the first
three months of this year as the central bank was battling to
stabilize financial markets roiled by multibillion-dollar losses
caused by rising mortgage defaults.


      That turmoil claimed its biggest victim on March 16 when Bear
Stearns came to the brink of bankruptcy and the Fed stepped forward
with a $30 billion line of credit to facilitate a sale of the
nation's fifth largest investment bank to JP Morgan Chase.


      Credit markets, while not back to normal, have stabilized and
many analysts believe the worst may be over - although they caution
that this forecast could prove too optimistic if the housing slump
deepens, causing even more mortgage defaults than now expected.


      Before the Fed made its first rate cut in September, the funds
rate had stood at 5.25 percent.

Gallery

Business and Economic News

The Federal Reserve cut a key interest rate by
a quarter-point Wednesday, a smaller move than the aggressive
easing it undertook earlier this year. There were signs the Fed may
believe it has done enough to prevent a deep recession.


Fed cuts key rate by a quarter-point

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