WASHINGTON, Dec 11: US central bank policymakers likely will switch to smaller-caliber ammunition when they fire off another round of interest-rate reductions on Tuesday but they still have no reason to save their bullets.

With the US economy in recession and reeling from the after-effects of the Sept. 11 attacks, there is near unanimity in financial markets that the policysetting Federal Open Market Committee (FOMC) will opt for a quarter percentage point reduction in its federal funds lending rate.

The FOMC is scheduled to begin meeting on Tuesday and to announce its decision at around 2:15 p.m. EST (1915 GMT).

It will be the 11th rate cut this year as the Fed keeps trying to bolster an economy that was losing steam even before Sept. 11, but showed worrying signs of crumbling afterward — shedding 799,000 jobs in October and November alone.

Eight of the 10 rate cuts that began last Jan. 3 have been aggressive half-percentage-point ones, including the last three, while two were smaller quarter-point cuts.

That has brought the fed funds rate, which governs overnight loans between banks, to a 40-year low of 2 per cent. Economists predict the FOMC will lower short-term rate a quarter point to 1.75 per cent, leaving it still at its lowest level since 1961.

With unemployment still rising and a very uncertain holiday shopping period ahead for retailers, the Fed can’t afford to look like it’s holding back,” said Gary Thayer, an economist with A.G. Edwards and Sons Inc. in St. Louis, Missouri.

But policymakers are expected to shift to a smaller rate reduction, counting on a significant impact since the rate is already low and because the Fed is maintaining the momentum of one of the most determined rate-cutting drives in its history.

A quarter percentage point cut when the fed funds rate was at 6-1/2 per cent (as it was when 2000 ended) is relatively small, but a quarter-point cut when it’s down to 2 per cent can have quite a significant impact, Thayer said.

There are some flickers of hope in recent data, which the Fed aims to fan as much as it can through rate reductions. Any boost it can give to consumer and business confidence should increase chances the current recession, which began in March, will be a relatively brief one.

The University of Michigan’s consumer sentiment index bounced higher for a third straight month in December while October factory orders — including orders for costly and long-lasting durable goods — climbed strongly in October with inventories at low levels.

The current recession should end early next year with the economy contracting about 1 percentage point from the peak, Sohn said, adding that he thinks recovery is in sight with or without another reduction in interest rates.

A survey last Friday by Reuters found all 24 primary dealers in US government securities firms that are big enough to work directly with the Fed in the financial markets — foresaw a quarter percentage point rate reduction on Tuesday.—Reuters