Worries that the post-September 11th US economy could sink into a deep recession are expected to persuade the Federal Reserve to slice US interest rates by as much as a half-percentage point today.
Such a cut would mark the third reduction in borrowing costs since the hijack attacks on the World Trade Centre and the Pentagon, and the 10th rate decrease this year.
Economic reports over the last week, including a spike in the jobless rate to 5.4 per cent and a contraction in gross domestic product during the third quarter, have solidified the conviction that the US economy is already in a recession.
Several analysts said that the risk that such a slump could turn out to be harsh and drawn out raises the likelihood that the Fed will opt for a fairly aggressive rate cut of a half-point, or 50 basis points.
A cut of a half-point would bring the federal funds rate for overnight loans between banks down to 2 per cent - its lowest level in four decades.
A short-term interest rate of 2 per cent would be well below the annual inflation rate of 2.6 per cent, as measured by the Consumer Price Index, and would signal a very aggressive stance toward stimulating the economy on the part of the Fed.
Such an accommodative posture is not unprecedented during downturns and analysts in the camp predicting a half-point cut said that it is warranted at a time when the September 11th attacks and the anthrax scare have injected a great deal of uncertainty into the economic picture.
The one bright spot in the economic landscape has been a surge in car sales recently but economists have cautioned those purchases were spurred on by heavy incentive offers from auto companies.
In addition to the work the Fed has done and is expected to continue doing to stimulate the economy, Congress is debating a fiscal package of tens of billions of dollars aimed at helping to jump-start growth.