Feds cut interest rate by 3/4 point

WASHINGTON, D.C. (CBS/AP) -- The Federal Reserve on Tuesday cut a key interest rate by three-fourths of a percentage point, moving aggressively to contain a credit crisis threatening to push the U.S. into a severe recession.

The latest action brought the federal funds rate -- the interest that banks charge each other -- down to 2.25 percent, the lowest point since late 2004. It marked the second back-to-back cuts of three-fourths of a percentage point.

Fed Chairman Ben Bernanke and his colleagues have now cut the funds rate six times since last September, with the reductions becoming more aggressive since January as the central bank has faced growing turmoil in global financial markets.

In Jacksonville, Fla., Tuesday, President Bush said the government will take further action if necessary to help the sagging economy.

Oil prices rebounded Tuesday as a rally on Wall Street and the prospect of a large interest rate cut drew buyers back to the futures market.

Retail gas prices, meanwhile, slipped slightly for the second day in a row, while diesel prices rose further above $4 a gallon.

In the past several months, rate cuts have fed oil price rallies as investors buy crude futures to hedge against inflation and the falling dollar.

The markets started strongly after Lehman Brothers and Goldman Sachs reported better-than-expected results for the first quarter. The Dow Jones industrial average jumped more than 200 points in early trading.

Oil advanced as a rally in the stock market gave investors hope that the economy will weather the credit market problems that forced the Fed-backed sale of Bear Stearns Cos. to JPMorgan Chase & Co.

Energy investors often view movements in equities markets as a proxy for the economy's health.

Light, sweet crude for April delivery rose $1.90 to $107.58 a barrel on the New York Mercantile Exchange.

On Monday, oil prices plunged by $4.53 a barrel on concerns that Bear's collapse was a sign of deeper economic problems. That drop marked a rare departure for oil traders from the dollar-driven buying that has sent crude to record levels.

Also, oil futures are priced in dollars, which makes them cheaper for foreign investors as the greenback falls.

As the Fed intensified its battle against the credit crisis and spreading economic weakness, the question looming is whether all of the effort will turn the tide.

Bernanke and his colleagues have already been working overtime, employing a variety of novel approaches to keep the economy out of a recession or at least moderate the impact of any downturn.

Treasury Secretary Henry Paulson made the rounds of the morning TV shows Tuesday to underscore the administration's commitment to keeping turmoil in the financial markets from worsening a struggling economy.

"The priority we have is a stable, orderly financial" market, he told CBS News' The Early Show.

He said the focus of policymakers "is reducing the spillover into the real economy from the turbulence and disruptions in our financial markets."

To those who would complain that the administration is more interested in bailing out Wall Street than struggling homeowners, Paulson said the thousands of Bear Stearns employees likely to lose their jobs and life savings, and thousands of shareholders who have lost billions because of the company's collapse, probably do not feel like they have been bailed out.

A cut in the funds rate will translate immediately into lower rates for consumers and businesses as banks cut their prime lending rate by a similar amount.

"There is no reason for the Fed not to be aggressive," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is in a recession, the financial system is in disarray and inflation is low."