WASHINGTON - Disappearing jobs, burrowing consumers and skittish companies are reasons for the Federal Reserve to ratchet down interest rates and brace the tottering economy.
Fed Chairman Ben Bernanke and his colleagues opened a two-day meeting Tuesday afternoon to make a fresh assessment of economic and financial conditions and decide their next move on rates. Their decision -- widely expected to be a rate reduction, the second in two weeks -- will be announced today.
Betting on a hefty rate cut, Wall Street staged an energetic rally. The Dow Jones industrials zoomed 889 points, its second-largest point gain ever.
Investors and many economists are predicting that the Fed will slash its key rate by half of a percentage point to 1 percent. A few think the Fed will opt for a smaller, quarter-point reduction to 1.25 percent.
"I'm torn," Stuart Hoffman, chief economist at PNC Financial Services Group, said of the size of the cut. "Clearly, the economic outlook has weakened."
Whatever the size of the rate cut, banks' prime lending rate for millions of consumer loans would drop by a corresponding amount. The prime rate is now at 4.5 percent and is used to peg many home equity loans, certain credit cards and other floating-rate loans.
Under either scenario -- a half percentage point or a quarter point cut -- both the Fed's key rate and the prime rate would fall to their lowest levels in more than four years.
Consumer confidence has plunged to its lowest level on record. The Conference Board reported Tuesday that its index dropped to 38 in October, from 61.4 in September. That drop reflects a bunker mentality and makes it more likely shoppers will retrench even more.
The Fed probably will hold the door open to additional rate reductions when it acts today, economists said. The Fed's last scheduled meeting of 2008 is Dec. 16.
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