Fed cuts rates by 0.75 points
Two dissents show disagreement on board
Last update: 2:24 p.m. EDT March 18, 2008
WASHINGTON (MarketWatch) - Stopping short of giving the market everything it wanted, the Federal Reserve cut a key interest rate by three quarters of one percentage point on Tuesday.
The Fed action takes the federal funds rate target down to 2.25%, the lowest since December 2004.
The Fed said the size of the rate cut was enough to promote growth.
"Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity," the Fed said.
But the market had expected more.
Based on futures trading in Chicago, investor's bets implied a 100% chance of a cut of one percentage point. Read complete Fed coverage.
The Fed did leave the door open for more cuts.
In its statement, the Fed said downside risks remain and it would act in a timely manner if needed.
Dallas Fed president Richard Fisher and Philadelphia Fed president Charles Plosser dissented in favor of less aggressive action.
The rate cut comes seven weeks after the central banks last lowered the benchmark overnight rate.
The Fed has slashed interest rates by a cumulative two percentage points so far this year, ranking it among the most abrupt rate-cutting sprees in the modern history of the U.S. central bank.
Some Fed watchers had warned that a full percentage point rate cut was more than the central bankers could stomach, especially because of the drop in the foreign exchange value of the dollar.
"They've got to be worried about the value of the dollar," said Vince Reinhart, a former top staffer at the Fed and now an analyst at the conservative American Enterprise Institute think-tank.
This week, the dollar hit record lows versus the euro and the Swiss franc and a twelve-and-a-half-year low versus the yen. Read complete market coverage.
But before the meeting, currency traders said the dollar would continue lower no matter what the Fed did. Many are agitating for coordinated currency intervention.
Another factor explaining the smaller-than-expected rate cut was concern about inflation.
Earlier this morning, the government reported rising prices at the wholesale level.
The core rate of the producer price index rose 0.5% in February and was up 2.4% year-on-year. See full story.
"The Fed is concerned about inflation," said Mickey Levy, chief economist at Bank of America.
In its statement, the Fed said "uncertainty about the inflation outlook has increased."
But the central banks said it expects inflation to moderate in coming quarters as energy and other commodity prices level out and slower growth eases pressures on goods.
Running out of room to maneuver.
Former Fed officials are increasingly calling for Congress and the Bush Administration to do more to help the economy, especially by assisting homeowners struggling to stay in their homes.
The government may also have to take steps to provide more capital to the banking system. The Fed's actions are essentially temporary.
The Fed has taken several extraordinary actions in the past week.
Most importantly, the Fed agreed for the first time to lend billions of dollars to investment firms that are holding complex mortgage securities that have fallen sharply in value. 
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