Fed likely to cut rates toward zero, mulls unconventional tools .hurriyet2008-detailbox-newslink { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:none; color:#000000;} .hurriyet2008-detailbox-newslink:hover { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:underline; color:#990000;} The Federal Reserve is widely expected to cut interest rates on Tuesday for the 10th time in just over a year and point toward emergency tools it could deploy to end a year-long recession, a move to drive the rate it controls close to zero as it continues the most sweeping effort to stabilize the economy.

Economists expect the central bank to lower its target for benchmark overnight rates by at least a half-percentage point, to 0.5 percent, and clearly state it will aggressively use unconventional measures to restore growth.

According to the median of 84 forecasts in a survey conducted by Bloomberg, the Fed’s Open Market Committee (FOMC) is expected to cut the benchmark rate in half, to 0.5 percent.

"This meeting will be an important step toward a new policy regime in which the emphasis shifts from the federal funds rate to ... balance sheet actions," former Fed Governor Laurence Meyer told Reuters.

The rate decision and accompanying policy statement are expected around 1815 GMT.

FOMC, which first started targeting the federal funds rate in the late 1980s, has lowered its benchmark by 4.25 percentage points since September last year. The last time it cut the rate to 1 percent, in 2003, the U.S. had already pulled out of a recession. This time, the central bank sees at least another half-year of economic contraction.

The U.S. dollar fell sharply Monday against other major currencies, particularly the euro and the British pound, ahead of the Fed's expected decision. The euro moved above $1.3600, which represents a 50 percent return from the euro's decline since Sept. 22.

Recent data has hardened views the U.S. recession is deepening, backing a case for aggressive and nontraditional actions by the FOMC. Some economists see fourth-quarter U.S. output shrinking at a 6 percent annual pace or more.

Unconventional measures could include so-called quantitative easing, which recalls the emergency steps taken by Japan to expand the supply and circulation of money to end a decade of stagnation and deflation in the 1990s after it was forced to lower rates to zero.

Fed Chairman Ben Bernanke previewed possible unconventional steps the U.S. central bank could take earlier this month.

He said the Fed could directly intervene in markets to lower borrowing costs and stimulate the economy by purchasing large quantities of U.S. government bonds or by buying private sector debt that investors have shunned.

"Our nation's economic policy must vigorously address the substantial risks to financial stability and economic growth," Bernanke said.

The housing collapse has led to the worst financial crisis since the Great Depression and tipped the U.S. economy into a recession last December. The downturn is already the longest since the 1980s and economists hold out little hope an expansion can take root before mid-2009.