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Fed Meeting Starts, and So Does the Guessing

The Federal Reserve begins a two-day meeting Tuesday, with analysts predicting another big rate cut as policymakers try to moderate an economic slowdown driven largely by the subprime mortgage crisis.

The session comes a week after the Fed made a surprise move to slash its key funds rate by three-quarters of a point to just 3.5 percent. That cut, the steepest in more than two decades, came as U.S. markets were poised for a dramatic decline.

But the cut has failed to calm worldwide markets, still jittery over fears of a U.S. recession. Many investment banks in Europe and Asia are heavily exposed to bad mortgages that have triggered record defaults in recent months.


University of Maryland economist Peter Morici said the Fed will take all of those factors into account as it prepares to make its decision on another cut.

The central bank "will certainly be focused on conditions in the mortgage market, the availability of credit to homeowners and the general state of the economy," Morici told NPR.

If the Fed cuts interest rates by half a point, as many expect, it might also lower the prime lending rate, which affects credit card and home equity loans, to 6 percent.

That could help prevent a prolonged slump in the housing market.

But even if Wall Street gets the half-point cut it is angling for, it still faces a number of economic obstacles before it can begin a solid upward move after months of decline.


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