WASHINGTON — The Federal Reserve cut a key interest rate Tuesday for the 11th time this year in an attempt to keep the economy from sinking further into recession. The quarter-point reduction was less than the half-point cuts the central bank had been making since the Sept. 11 attacks.
The Fed's cut is aimed at bolstering the economy, which has been in recession since March and was dealt another severe blow by the terrorist attacks. In their aftermath, consumer confidence has plunged, layoffs have rocketed and unemployment soared, hitting 5.7 percent in November.
Economists hope that lowering borrowing costs will persuade consumers and businesses to spend and invest.
On Tuesday after their last scheduled meeting of the year, Federal Reserve Chairman Alan Greenspan and his colleagues announced they were cutting the target for the federal funds rates, the interest banks charge each other on overnight loans, to 1.75 percent, the lowest since July 1961.
The Fed, in explaining its rate cut said: "To be sure weakness in demand shows signs of abating, but those signs are preliminary and tentative."
In response, commercial banks were expected to reduce their prime lending rates, the benchmark for millions of consumer and business loans, by a similar quarter-point to 4.75 percent, the lowest since November 1965.
Tuesday's quarter-point cut in the federal funds rate marked the fourth reduction since the terrorist attacks, but the three previous cuts were each by a bigger half-point. The last rate cut came Nov. 6.
Financial markets had expected the smaller quarter-point cut, believing the central bank would make the switch in an effort to signal that the string of rate cuts may be drawing to a close.
However, in the part of the statement that reflects possible future action, policy-makers left the door open to further rate cuts should the recession show signs of lingering.