Fed gives lump of coal to jittery markets

WASHINGTON, Dec 11, 2007 (AFP) – The Federal Reserve’s third cut in interest rates in as many meetings failed to allay concerns on financial markets that the US economy runs a risk of entering a serious downturn, analysts said. Economists said the Fed headed by chairman Ben Bernanke appeared divided and muddled in their outlook, leaving markets uncertain about the how the economy will weather the credit market storm and housing slump.

The central bank trimmed its federal funds rate to 4.25 percent and offered a glum economic outlook that leaves the door open to more reductions in the coming months.

It also cut the discount rate, the central bank’s lending rate to commercial banks, by a quarter point to 4.75 percent, despite some analyst forecasts for a sharper cut to help stimulate credit flows.

Wall Street went into a tailspin, with the main indexes losing more than two percent, after the announcement while bonds rallied sharply in anticipation of a weaker economy and possibly further rate cuts.

The Federal Open Market Committee (FOMC) voted 9-1 in favor of the action, with one member supporting a half-point reduction.

“My best guess is that the confusing statement is a compromise between the inflation