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Fed cutting rates again as credit crunch intensifies

Bear Stearns collapse prompts emergency measures

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In an emergency move to prop up credit markets, the Federal Reserve cut the discount rate to 3.25 percent over the weekend and expanded the list of banks and financial institutions that can borrow money at that rate. The Fed also announced Sunday that it was standing behind J.P. Morgan Chase's move to buy troubled investment firm Bear Stearns Cos by providing up to $30 billion in financing that protects J.P. Morgan from losses. The Federal Reserve Board's Open Market Committee is expected to approve a large reduction in its target for the federal funds overnight rate, which is currently 3 percent, when it meets Tuesday. While investors had been betting the committee would cut the rate by 50 to 75 basis points, many now see an increased likelihood the rate will be cut by 100 basis points, to 2 percent. Although the federal funds rate and the discount rate are short-term interest rates that do not directly influence rates on fixed-rate, long-term mortgages, some adjustab...