"Once credit starts to flow more freely, the lower rates will help" stimulate the economy, said Gus Faucher, economist with Moody's Economy.com.
"We can't escape things getting worse before they get better," said Diane Swonk, chief economist at Mesirow Financial in Chicago. "But we can prevent widespread hemorrhaging, and that's what the Fed is doing."
John Silvia, chief economist at Wachovia Economics Group, estimated that the country's gross domestic product -- a measure of total output of goods and services -- fell at a 1% rate in the third quarter and would drop at a rate of as much as 3% in the fourth quarter.
One common definition of a recession is two or more consecutive quarters of contraction in the GDP.
"The weak economy is still going to be the story going into December," Silvia said. "The consumer is really going to get hit in the fourth quarter."
The stock market had little reaction to the widely expected rate cut.
The Dow Jones industrial average, which soared 889 points Tuesday, was up as much as 145 points Wednesday before the Fed's decision. The index initially fell after the announcement, then bounced up and down before closing at 8990, a loss of 74.16 points.
"At the end of the day, the fact that we didn't take a lot off of yesterday is the best we could hope for," Swonk said.
The Fed's cut spurred gains in Asian stock markets, with Hong Kong's blue-chip Hang Seng Index rising nearly 10% in afternoon trading and Japan's Nikkei 225 stock average gaining 7%.
Chinese stocks gained after China cut its benchmark lending rate 0.27 percentage point, its third cut in two months, to try to halt the sharp fall in the nation's economy.
The Federal Reserve, in announcing its rate cut, said "recent policy actions, including today's rate reduction . . . should help over time to improve credit conditions and promote a return to moderate economic growth."
David M. Jones, a former Fed economist and president of DMJ Economic Advisors in Denver, interpreted that as a signal that the Fed intended to keep its key rate at 1%.
"It looks like the Fed is not going to go any lower, and that's why the stock market response is somewhat muted," Jones said.
But Swonk, noting that the Fed downplayed inflation compared with "downside risks to growth," said the central bank had left the door open to further cuts.
"It's wide open," Swonk said. "Zero percent is the boundary, not 1%. . . . This is a Fed that's more than prepared to do what it needs to do."
