Economists anticipate first Fed rate cut in years

WASHINGTON -- For the first time in more than four years, the Federal Reserve appears ready to lower interest rates to prevent a housing meltdown and a painful credit crunch from driving the economy into a recession.

A rate cut would affect millions of borrowers with the intention of getting them to spend and invest more, which could revitalize the economy.

In one of their most important and anxiously awaited decisions, Fed Chairman Ben Bernanke and his central bank colleagues meet today to determine their next move on interest rates. Those policymakers are widely expected to cut an important rate, now at 5.25 percent, by at least one-quarter of a percentage point. Some analysts predict a bolder step, a half-point reduction.

If the Fed drops the rate, then the prime lending rate commercial banks charge many individuals and businesses would fall by a corresponding amount. It now is at 8.25 percent.

"It's no longer a debate over whether they will ease but by how much," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is soft and getting softer," and the Fed has come under economic and political pressure to act.

Should the Fed go with a quarter-point cut, analysts expect policymakers will lower the rate again in October and in December, their final meeting of the year.

Fed action would mean that borrowers who can obtain credit would see rates drop on a variety of loans. It would become less expensive for people to finance certain credit card debt and for homeowners to take out popular home equity lines of credit, which often are used to pay for education, home improvements or medical bills.

Also, it should help some homeowners whose adjustable-rate mortgages reset in the fall.

Less immediate would be relief for the country's economic health. An expected series of rate decreases could take three months to nine month before rippling through the economy and bolstering activity.