Fed expected to cut rates one more time, then pause

Fed Chairman Ben Bernanke and his colleagues began their second day of discussions on Wednesday. Financial markets widely expected that those talks would end with an afternoon announcement that the Fed will cut a key interest rate by a quarter point.

That would be the seventh reduction in the federal funds rate since the central bank began battling against the credit squeeze and the growing possibility of a recession last September.

The Fed delivered two three-quarter-point moves and one half-point cut over an eight-week period from mid-January to mid-March that represented the central bank's most aggressive rate cuts in a quarter-century.

However, the central bank is expected to respond with a less aggressive quarter-point move at this meeting, in part because the financial turmoil seems to have eased and because there are growing concerns about inflation.

While there is some thought that the Fed might decide to forgo a rate cut, most analysts believe that the greater likelihood is a quarter-point move.

"My best guess is that they want to buy a little more insurance against an economy that looks like it is in recession," said Lyle Gramley, a former Fed board member with the Stanford Financial Group.

The overall economy eked out annual growth at a rate of 0.6 percent in the first three months of the year, the Commerce Department reported Wednesday, matching the anemic pace turned in during the final three months of last year. Analysts said they looked for the gross domestic product to drop into negative territory in the current April-June period.

A quarter-point cut would move the funds rate to 2 percent, more than 3 percentage points below the 5.25 percent funds rate in effect before Sept. 18, when the Fed started cutting rates.

A quarter-point move would trigger a similar reduction in banks' prime lending rate, the benchmark for millions of consumer and business loans, which now stands at 5.25 percent.