Fed Expected To Cut Rates To Help Economy

Tuesday, October 30th 2007, 8:59 am

By: News On 6

WASHINGTON (AP) _ The Federal Reserve is likely to cut an important interest rate this week, a move designed to help the economy get through the stresses of a painful housing slump and credit crunch.

Fed Chairman Ben Bernanke and his central bank colleagues plan to open a two-day meeting Tuesday afternoon to assess the economic and financial challenges facing the country and plot the Fed's next move on interest rates.

Many investors and economists predict the Fed will follow up its bold, half-percentage-point rate cut in September with another, probably smaller, reduction when they wrap up their meeting on Wednesday.

The federal funds rate probably will be lowered by one-quarter percentage point to 4.50, these analysts predict. The federal funds rate affects many other interest rates charged to individuals and businesses and is the Fed's most potent tool for influencing economic activity.

If that happens, commercial banks' prime lending rate _ for certain credit cards, home equity lines of credit and other loans _ would drop by a corresponding amount, to 7.50 percent.

The overriding worry for the Fed is that problems in housing and harder-to-get credit could seriously crimp spending and investing by people and businesses, dealing a dangerous blow to the national economy. Many analysts are hopeful the economy can avoid a recession but the odds of one occurring have grown considerably the start of this year.

A few analysts, meanwhile, think there's a chance the Fed will leave rates unchanged.

They believe the economy is sufficiently resilient to weather the financial storm. They also worry that surging oil prices, which have reached record highs in recent days, could spread inflation through the economy.