Fed Lowers Rate by a Quarter Point to 4.25 Percent (Craig Torres)

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By Craig Torres

Dec. 11 (Bloomberg) -- The Federal Reserve cut its benchmark interest rate by a quarter-point to 4.25 percent to prevent the housing slump and credit squeeze from undoing the six-year expansion.

``Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,'' the Federal Open Market Committee said in a statement after meeting today in Washington. The change ``should help promote moderate growth over time.''

Stocks fell and Treasury notes advanced after the decision, which some economists said fell short of what's needed to spur lending and avert a recession. The central bank also pared the discount rate, the cost of direct loans from the Fed, by a quarter-point to 4.75 percent. Some analysts predicted a bigger reduction.

``If things deteriorate they will cut again,'' said Stephen Cecchetti, professor of international economics at Brandeis University in Waltham, Massachusetts, and a former director of research at the New York Fed. ``If financial conditions don't start to improve dramatically,'' they might have to cut before the next meeting scheduled for Jan. 29-30, he said.