The Fed is going to send a very strong signal that they will do whatever it takes to restore stability to the economy," predicted Mark Zandi, chief economist at Moody's Economy.com.
Fed does fulfill the desires of investors with its action Wednesday, it is not likely to end the turbulence on Wall Street.
A half-point rate cut on Wednesday would push borrowing costs lower for millions of consumer and business loans with banks moving quickly to match the Fed's action by lowering their benchmark prime lending rate from 4.5 percent, where it has been for the past three weeks, down to 4 percent.
The Fed is hoping that the sharply lower rates will help boost economic growth going forward. Many analysts believe the GDP - the measure of the value of all the goods and services produced in the country - is falling further in the current quarter and will also fall in the first three months of next year.
That pattern would meet the classic definition of a recession as at least two consecutive quarters of declining GDP.
The country has lost jobs every month this year and the unemployment rate now stands at 6.1 percent. Economists forecast that it could hit 8 percent by the spring of next year due to the severity of the shutdown of bank lending, a credit crisis triggered by billions of dollars of losses in mortgage lending as defaults soared to record levels.
That has jolted banks, resulted in government takeovers of the nation's two biggest mortgage companies and the biggest shakeup on Wall Street since the Great Depression.
Banks have become fearful about making new loans, a development that has had ripple effects on American businesses trying to get loans for normal operations, and on American consumers, who are having trouble getting car loans and home loans.
"The credit squeeze has moved from Wall Street to Main Street and it is seriously affecting the real economy
Some analysts think the Fed could drive the funds rate as low as 0.5 percent and might even go to zero, which the Bank of Japan did in an effort to combat a decade-long bout of malaise in the 1990s caused by a real estate bust in that country.
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