WASHINGTON -- The Federal Reserve cut interest rates Tuesday for the seventh time this year, warning that the economy may continue to weaken and signaling its willingness to ease rates even more to ward off a recession.
The rate-setting panel headed by Fed Chairman Alan Greenspan said it would reduce its benchmark rate for overnight loans between banks from 3.75 percent to 3.5 percent, its lowest level in seven years. The federal funds rate was 6.5 percent when the central bank began cutting in early January.
Although the quarter-point reduction had been widely anticipated, stock prices fell sharply after the Fed announcement. The Dow Jones Industrial Average plummeted 146 points to close at 10,174, while the NASDAQ index lost 50 points, finishing at 1,831.
Economists said the sell-off appeared to reflect investor disappointment that the slowdown has shown few signs so far of responding to the central bank's best efforts to engineer a recovery.
"There is still a significant possibility of the economy sliding into a recession" said Sun Won Sohn, chief economist at Wells Fargo & Co. "Chairman Greenspan wants to take no chances."
This year's series of rapid-fire rate cuts represents the Fed's most aggressive effort to stimulate the economy since the deep recession of the early 1980s. Although the current slump is considerably milder, so far it has not been revived by the tonic of lower interest rates.
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