WASHINGTON -- The Federal Reserve began a two-day meeting on Tuesday that was expected to end with a small interest rate cut that could be the last in a string of reductions dating to mid-September.
The U.S. central bank opened its policy-setting meeting at 2 p.m. EDT, a Fed official said. A decision on rates is expected to be announced about 2:15 p.m. on Wednesday.
Financial markets widely expect the Fed to lower benchmark overnight rates by a quarter-percentage point to 2 percent, which would the lowest since December 2004, and offer a hint the rate cutting may be at an end. Interest rate futures prices implied a small probability the Fed could leave rates unchanged.
The meeting began after fresh reminders of the deep trouble the economy faces from a combination of fading growth and soaring prices for energy and commodities that is pushing supermarket food prices to new highs and causing growing unease among both consumers and Fed officials.
The Conference Board said at mid-morning that its Consumer Confidence Index slumped to 62.3 in April from a revised 65.9 in March. At the same time, new data from the closely watched Standard & Poor's/Case Schiller home price index showed a continued plunge in prices of existing homes in February.
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Some 17 of 20 measured regions had record annual falls in home prices. "There is no sign of a bottom in the numbers," said David Blitzer, chairman of S&P's index committee.
In a sign of rising distress, real estate data firm RealtyTrac said on Tuesday that U.S. home foreclosure filings jumped 23 percent in the first three months of the year from the last quarter of 2007. Foreclosure filings were more than double that of a year earlier.
ON RECESSION'S EDGE
The cascading evidence of economic malaise -- likely to be reinforced when the government issues its first estimate of first-quarter gross domestic product at 8:30 a.m. EDT on Wednesday -- means the Fed will likely say that it remains more concerned about economic weakness than mounting prices.
However, it may also draw attention to the deep rate cuts already put in place and imply it wants time to assess whether they are enough to foster a return to stronger growth later in the year.
The Fed has lowered the overnight federal funds rate to 2.25 percent from 5.25 percent in six steps since mid-September, but there still are ongoing credit strains and no signs yet the housing market has reached bottom.
The GDP report is forecast to show only a slight 0.2 percent annual rate of economic growth in the first quarter, down from 0.6 percent in the fourth quarter and teetering on the verge of outright contraction.
Earlier this month, Fed Chairman Ben Bernanke conceded the economy had weakened since January. "It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," the Fed chief said.
President George W. Bush said on Tuesday that he was deeply concerned about U.S. and world food prices and suggested he was ready to consider a moratorium on gasoline taxes this summer.
But with pump prices heading toward $4 a gallon, he warned there was little excess capacity to pump more oil and said the economy inescapably faced "tough times."
Persistent price pressures, particularly for food and gasoline, have already put some Fed officials on high alert and have led some economists to warn that the central bank's actions were undermining the U.S. dollar in a way that was fueling commodity inflation.
Two officials -- Philadelphia Federal Reserve Bank President Charles Plosser and Dallas Fed President Richard Fisher -- voted against the hefty three-quarter point rate cut put in place at the Fed's last meeting on March 18.
Plosser came close to saying earlier this month that he felt the Fed was leaning too heavily in favor of stimulating growth and was taking a risk of creating conditions that might make it difficult to get prices under control in future.
"The role of monetary policy is to ensure the stability of the purchasing power of the nation's currency, so that markets are not distorted by inflation," Plosser said. "To ensure the credibility of monetary policy we should never ask monetary policy to do more than it can do."
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