Fed Cuts Rates by Larger-Than-Expected 1/2 Point

NEW YORK – The Federal Reserve cut the key federal funds rate by 0.50 percentage point on Tuesday, bringing it to 3.25 percent, in its attempt to revive the U.S. economy.

While Wall Street almost unanimously expected the central bank will cut rates again, the vast majority of economists anticipated a smaller, 25-basis-point move.

The federal funds rate is a key interest rate that influences the cost of borrowing money for everything from house to cars to refrigerators.

The Federal Open Market Committee, the panel responsible for setting the federal funds rate, announced its decision at 2:15 p.m. EDT Tuesday at the end of its regularly scheduled meeting.

This is the seventh time the Fed has cut its interest rates this year in its attempt to end a dramatic slowdown in the U.S. economy. The series of cuts is the Fed's most aggressive rate-cutting effort since Chairman Alan Greenspan took office in 1987. Before Tuesday's move, the Fed, which began its credit-easing campaign in January, had last cut the funds rate on June 27.

No Recent Growth

The economy, which began slowing around the middle of last year, logged hardly any growth at all in the second quarter of 2001, according to the latest figures from the Commerce Department.

In fact, many economists think that when Commerce releases revised figures on gross domestic product at the end of this month, they may show the economy logged zero growth or possibly even contracted in the April-to-June period.

Gloom about how long the slowdown will persist has hung over Wall Street like a dark cloud in recent months.

Addressing Congress on July 18, Fed Chairman Alan Greenspan described the economy as still weak and deteriorating in some areas, and was reluctant to be pinned down on when it would recover. ``If I had to make a forecast ... toward the end of this year we will see things improving and clearly so next year,'' he said.

Echoing the notion that the sluggishness could drag on, Atlanta Fed President Jack Guynn told Reuters in an interview earlier this month: ``The process, the adjustment process, is just taking longer than I -- and I think many other people -- thought that it would.''

For most of this year, the worst aspects of the economic weakness have shown up in the high-technology sector, which saw the enormous boom of the late 1990s and early 2000 fizzle as demand suddenly plummeted.

An announcement from Ford Motor Co. on Friday of job cuts and an intention to restructure added to the investment community's dejection about economic prospects as it highlighted worries that the high-tech troubles were spilling over into so-called Old Economy sectors.

-- Reuters and the Associated Press contributed to this report