Fed cuts rate by 1/4%

WASHINGTON — Even as oil and gold prices were shooting up Wednesday, the Federal Reserve concluded that recession, not inflation, is still Public Enemy No. 1.

To avert a full-blown downturn, Fed Chairman Ben Bernanke and his fellow policymakers cut interest rates for the second time in as many months.

By lowering the benchmark federal funds rate by a quarter of a percentage point to 4.5 percent, they hope to stimulate economic growth. In September, they slashed the rate by half a percentage point after watching the housing market slow dramatically and threaten to pull down the economy.

"The Fed is clearly in a race against time," trying to stoke growth before the economy slumps into recession, Bernard Baumohl, managing director of the Economic Outlook Group LLC, said in a written assessment.

The central bank also expressed continued worries about inflation and said it believed after the two rate cuts that the risks between week growth and higher inflation were roughly balanced.

"The odds of another rate cut at the December meeting are substantially less than they were before this statement," said David Jones, chief economist at DMJ Advisors in Denver. Jones said he still expected one more rate cut to deal with a weak economy but that it will most likely come at the Fed's January meeting.

In a brief statement explaining the decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that the central bank now judges that "the upside risks to inflation roughly balance the downside risks to growth."

By stating that risks are now roughly balanced, the Fed was seen as signaling it judges that further rate cuts may not be necessary.

The Fed's decision came on a 9-1 vote with Thomas Hoenig, president of the Kansas City regional Fed bank dissenting, arguing that he preferred no change in the funds rate.

Commenting on the economy, the Fed struck a more positive tone than it did last month when it expressed concerns about the toll the August credit crisis would take on housing and the overall economy.

In the current statement, the Fed said, "Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance."

The central bank said the pace of the economic expansion "will likely slow in the near term, partly reflecting the intensification of the housing correction."