Fed cuts rates again

The Federal Reserve on Wednesday cut a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. It signaled that further rate cuts were possible.

The Fed action Wednesday pushed the funds rate to 3%. It followed a three-fourths of a percentage point cut on Jan 22, a day after financial markets around the world had plummeted on fears that the US economy was heading into a recession. That decrease had been the biggest one-day move in more than two decades.

The half-point cut Wednesday followed news that the economy had slowed significantly in the final three months of last year with the Gross Domestic Product expanding at a barely discernible pace of 0.6%, less than half what had been expected. The report came amid increased concern from several quarters about a possible recession. In a brief statement explaining their decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that "financial markets remain under considerable stress."

The Fed move was approved on a 9 to 1 vote. Richard Fisher, President of the Fed`s Dallas regional bank, dissented, preferring no change in rates.

The rate cut marked the fifth time that the Fed has cut the funds rate since it started with a half-point cut on Sept 18 in response to the severe credit crisis which hit global markets in August.

The latest Fed action was expected to be quickly followed by cuts in banks` prime lending rate, the benchmark rate for millions of consumer and business loans. The Fed`s hope is that by making credit cheaper, it will encourage more borrowing, giving the economy a needed boost.

The Fed`s half-point move met expectations of financial markets and was a bolder move than the smaller quarter-point cut that many economists had been expecting.