Central banking under microscope as Fed looks for easy way out

WASHINGTON, Jan 22, 2008 (AFP) – The Federal Reserve’s emergency rate cut Tuesday will deliver a jolt of stimulus to an ailing US economy but may be too little and too late to avert a painful recession, analysts say.

Economists say the surprise cut of three-fourths of a percentage point, the largest since the central bank began using the federal funds rate as a policy tool in the 1990s, may help kick-start flagging growth.

Yet some say the move will bring little immediate relief and other critics say Fed chairman Ben Bernanke may have buckled to market pressure, setting a bad precedent.

Keith Hembre, chief economist for First American Funds, said the rate cut in the funds rate to 3.5 percent “is a welcome move” but not enough to avert a downturn.

“Our forecast is that we’re likely to have a recession and the Fed needs to bring its real rate (after adjusting for inflation) to zero,” Hembre said, suggesting a federal funds rate of around 2.5 percent.

“Monetary policy is going to affect the economy with a substantial lag so this will not do anything to head off economic trouble in 2008 but it should set the stage for a pretty good environment in 2009,” Hembre added.

The emergency action aft