Fed poised to cut rates; may take a break after that

The Fed is widely expected to lower its key interest rate by one-quarter percentage point to 2 percent at the end of its session Wednesday.

That would mark a modest rate reduction after a recent string of hefty cuts. The Fed is facing a difficult juggling act of trying to shore up the faltering economy while also trying to keep inflation from taking off.

In response to the Fed's expected action, the prime lending rate for millions of consumers and businesses would fall by a corresponding amount, to 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans. Both rates would be the lowest since late 2004.

Economists think the Fed may leave rates at such low levels possibly through the rest of this year and maybe into next year.

The Fed started cutting rates last September to aid the economy. But galloping food and energy prices have prompted fears that they could spread inflation throughout the economy. And that's complicating the Fed's job.

President Bush, in a Rose Garden news conference Tuesday that dwelled largely on the economy, said he understands Americans' anxiety over high gasoline prices. "If there was a magic wand to say, 'OK drop price,' I'd do that," he said.

Gas prices hit a new record of $3.607 a gallon on Tuesday, according to a survey of stations by AAA and the Oil Price Information Service.

The economy has weakened meanwhile, strained by housing, credit and financial debacles.

On Wall Street, investors showed caution ahead of the Fed's decision. The Dow Jones industrials lost 39.81 points to close at 12,831.94.

Growth during the January-March quarter is expected to have slowed to an anemic pace of just 0.5 percent. The government releases a report on the first-quarter's performance on Wednesday. Bush said he hadn't been briefed on the figures but said, "I think they'll show that it's a very slow economy."

A growing number of analysts believe the economy has fallen into a recession and is contracting now.

"People - economists can argue over the terminology," Bush said, refusing to put a recession label on the economic climate. "These are difficult times," he acknowledged. "You know the average person doesn't really care what we call it," he said.

Consumer confidence, as measured by the Conference Board, sank to a five-year low in April, as rising gas prices and higher unemployment put people in a more gloomy mind-set.

Bush and Fed officials are hoping that the government's $168 billion stimulus package - including tax rebates, which started flowing to bank accounts on Monday - will help give the economy an energizing jolt in the second half of this year.