Fed set to slash rates to battle banking liquidity crisis

WASHINGTON, March 18, 2008 (AFP) – The US Federal Reserve opened a meeting Tuesday tipped to cut interest rates sharply as part of a multi-pronged effort to halt a mushrooming financial crisis, analysts say. Just two days after the US central bank engineered a dramatic bailout of collapsing investment bank Bear Stearns, the Federal Open Market Committee began a policy meeting against a backdrop of turbulent global markets.

Economists are anticipating a hefty cut in the federal funds rate — currently at 3.0 percent — possibly as much as a full percentage point, as the central bank steps up its battle against a global credit crunch.

But some are questioning whether the Fed, under the leadership of chairman Ben Bernanke, has enough tools and power to head off a full-blown economic recession.

Joseph LaVorgna, senior economist at Deutsche Bank, said he expects the federal funds rate to be slashed by a full 100 basis points in view of the economic turmoil.

“A deeper and longer recession seems more likely now than a brief, mild one,” he said, adding rates could go as low as 1.0 percent by the end of June.

“We are in the midst of the most pervasive financial crisis in a generation, which h