WASHINGTON -- The Federal Reserve threw a one-two punch with two half-point cuts in interest rates in January as it pursued its fight to keep the nation from falling into a recession. But private economists believe it will take more rate reductions in the coming months to score a knock out.
Fed Chairman Alan Greenspan and his colleagues cut a key interest rate again Wednesday, following up on a cut ordered just four weeks earlier, Jan. 3.
The two half-point cuts marked the first time in Greenspan's 13-year tenure that the central bank has reduced the funds rate by a full percentage point in a single month.
The Fed's action came against the backdrop of troubling economic news. Consumer confidence in the economy fell in January to its lowest point in four years. Manufacturers are struggling, cutting back production and laying off workers as they cope with an economy that has slowed dramatically since the first half of last year.
"The Fed will do whatever it takes to prevent a recession and reignite growth," said Merrill Lynch economist Bruce Steinberg.
On Wednesday, the Fed's half-point cut lowered the target for the federal funds rate, the interest that banks charge each other, to 5.5 percent. It was 6.5 percent at the beginning of January, reflecting six rate increases from June 1999 to May 2000 as the central bank worked to slow growth and combat inflation.
The Fed's latest action means a further drop in borrowing costs for millions of Americans as commercial banks immediately announced reductions in their prime lending rate, the benchmark for many business and consumer loans, by one-half point to 8.5 percent.
Steinberg and other analysts predicted Fed policy-makers will cut rates again by a quarter point at each of its next three meetings in March, May and June. That would push the funds rate down to 4.75 percent. Some other economists offered slightly different scenarios on the timing of cuts but all agreed more would be forthcoming.
The Fed -- in the part of its statement that reflects possible future action -- maintained its stance that its chief concern is the threat of the economy stalling and falling into a recession.
"The risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future," the Fed said.
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