US Federal Reserve cuts interest rates as housing slump, recession deepen

In the statement issued by the boards Federal Open Market Committee, the US central bank signaled its intention to hold off making further rate cuts in the coming months, citing some stabilization of financial markets and rising inflationary expectations. All of the major stock indexes gave up early gains and closed marginally down for the day, reacting to the indication that the most aggressive monetary-policy easing in two decades was coming to a halt.

The muted reaction by big investors to the Feds narrow rate cut and hint of a pause in further monetary easing reflected a sharp shift in market sentiment since the Fed intervened in March to rescue the investment bank Bear Stearns, guaranteeing $29 billion of its failing mortgage-related assets to induce JPMorgan Chase to take over the collapsing brokerage house.

At the same time, the Fed took the unprecedented stepat least since the Great Depressionof allowing non-depository investment banks to borrow directly from its coffers, in exchange for mortgage-backed debt and other speculative securities whose market value has plummeted in the wake of the housing bust.