Fed Cuts Rates by 1/4 Point

The Federal Reserve on Tuesday reduced its key interest rates by a quarter of a percentage point in an attempt to counter any further damage to the U.S. economy.

The rate reduction brought the federal funds rate to 2.25 percent from 2.5 percent.

The rate cut was smaller than most expected, as many market-watchers were expecting a half-point cut, especially after October data released last week showed broad indications that the United States is already in a recession.

The Fed has already made two half-point rate cuts since the Sept. 11 attacks on America that many economists believe pushed the U.S. economy into recession.

To avert a full-blown downturn this year, the Federal Reserve has slashed interest rates 10 times, beginning with five half-point cuts in the funds rate followed by two quarter-point moves on June 27 and Aug. 21, and by a two half-point moves on Sept. 17 and Oct. 2.

In a Reuters poll of the 24 primary dealers of U.S. government securities conducted on Friday, 15 predicted the policy-setting Federal Open Market Committee (FOMC) will lower the 2.5 percent federal funds rate on overnight bank lending to 2.0 percent on Tuesday. 

The other nine firms who deal directly with the central bank in money market operations said the Fed would opt for a smaller quarter-point rate cut this time around. In the previous poll on Oct. 2, all 23 dealers questioned predicted a quarter-point cut. 

The poll was conducted Friday after the U.S. Department of Labor reported the unemployment rate shot up to 5.4 percent — the highest in about five years — from 4.9 percent in September. The economy shed a staggering 415,000 jobs in October, the deepest monthly decline in more than two decades.

The dismal jobs report capped a week of data showing the economy contracted 0.4 percent in the third quarter, the weakest performance since the last recession in 1991, while consumer confidence and spending plunged and a manufacturing slump deepened.

Reuters and the Associated Press contributed to this report.