Fed cut expected today

By Martin Crutsinger
Associated Press

WASHINGTON — The Federal Reserve, faced with an economy now officially suffering through a recession and shedding jobs at the fastest pace in two decades, is widely expected to cut interest rates today for the 11th time this year.

But even with further Fed rate cuts, analysts said, long-term rates, which are set by financial markets, have probably seen their lows.

The rate for 30-year mortgages hit a three-decade low of 6.45 percent in early November, triggering a wave of mortgage refinancings. That rate now is at 6.84 percent and analysts said it will probably head higher as signs of recovery grow more solid.

Many economists also said they believe the central bank today will signal that its aggressive credit lowering is drawing to a close by making a quarter-point reduction instead of the bigger half-point moves it has favored for most of this year.

Some analysts had thought the central bank might decide to leave rates unchanged at its final meeting of the year, given some tentative positive signs such as stronger-than-expected auto sales in October and November and a big jump in factory orders.

Those views changed last week when the government reported that the unemployment rate shot up to 5.7 percent last month as 331,000 more Americans lost their jobs, bringing total job losses over the past two months to 800,000, the largest total in 21 years.

"Given the dismal unemployment report, a quarter-point cut is a fait accompli," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis.

The Fed began cutting its rate early this year with a surprise half-point cut on Jan. 3, in between its regular meetings. In the 10 rate cuts so far this year, seven came at regular meetings and three occurred between meetings, including one on Sept. 17, the day Wall Street reopened following the Sept. 11 attacks.

All the activity has pushed the federal funds rate, the interest that banks charge each other on overnight loans, down to 2 percent, the lowest level since 1961.

The Fed's moves have pushed market rates down as well, with the prime lending rate, the benchmark rate for millions of consumer and business loans, now at 5 percent, the lowest level since June 1972. The prime stood at 9.5 percent when the year started.

The Fed used half-point reductions early in the year, switching to quarter-point moves in June and August.

Since the terrorist attacks pushed the economy into a tailspin, the Fed has delivered three more half-point cuts.

• On the Web: Federal Reserve