US Fed puts up measures to fight crisis

Federal Reserve is expected to cut interest rates by at least a half-percentage on Wednesday in another move to turn around the credit crisis that is threatening the United States with a deep and long recession.

The policy-setting arm of the U.S. central bank, The Federal Open Market Committee is expected to announce its decision at around 2:15 p.m.

Out of 14 big bond firms surveyed by Reuters, ten firms predicted that the Federal Reserve would lower the overnight federal funds rate a half point to one percent. That would be the lowest since June 2004 when the Fed was fighting a perceived risk of deflation, which some fear is about to reemerge.

On Tuesday, financial futures markets were darker; entailing 44 percent likelihood the Fed would lower borrowing costs by three-quarters of a point, which would take them to territory not visited since July 1958.

"With confidence flat on its back, the labor market weak, and credit markets still under intense strain, we expect the FOMC to announce a 50-75 basis point rate cut tomorrow," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut. A basis point is one hundredth of a percent.

As investors bet lower interest rates that might save the economy from further weakening, the US stock market staged a rally even if data showed US consumer confidence is plunging.

Fed on its way for further cuts

The Fed has cut rates to 1.5 percent from 5.25 percent to oppose a credit crisis that started with the collapse of the U.S. mortgage market. The most recent move was a surprise half-point cut between regular meetings on Oct. 8 coordinated with a number of other central banks.

Some market participants think the Fed may be on the way to cutting rates to zero. A more-forceful three-quarter point cut would be insurance against the risk of deflation.

But some analysts said that the lack of a clear deflationary threat at this point in time may lead the Fed to opt for the more-incremental half-point move.

"Given that deflationary forces from the collapse of the credit cycle have still not been seen, the FOMC may be reluctant to deliver a larger rate cut," said Marc Chandler, chief global currency strategist at Brown Brothers Harriman.