INSTANT VIEW - Federal Reserve cuts key rate 1/4 point

NEW YORK (Reuters) - The Federal Reserve lowered a key U.S. interest rate by a modest quarter percentage point on Wednesday in what may be the last of a series of cuts aimed at aiding an economy hit hard by a housing slump and credit market turmoil.

KEY POINTS: * The Fed's action takes the bellwether federal funds rate to 2 percent, the lowest since December 2004. * It was the seventh reduction in a campaign that has brought rates down by 3.25 percentage points since mid-September. * Fed says uncertainty about inflation outlook remains high. * Fed says readings on core inflation somewhat improved, but energy, commodity prices up. * Fed says expects inflation to moderate in coming quarters

COMMENTS:

ERIC KUBY, CHIEF INVESTMENT OFFICER, NORTH STAR INVESTMENT

MANAGEMENT CORP, CHICAGO:

"It seems that what people were concerned about was language that suggests this is the end of the rate cuts, and it seems as if that sort of language wasn't in the (statement).

"Everything I heard coming into today was there could be signals of a pause, and it's not seeming like that language was in there, so I think that's what people are reacting to."

"Today, you had pretty good corporate earnings going into the day, and on top of that you had Fed speak that didn't dampen the rally, so it seems to be what people hoped for."

JOSEPH BALESTRINO, FIXED INCOME MARKET STRATEGIST, FEDERATED

INVESTORS, PITTSBURGH:

"I'm disappointed from the standpoint that I thought we would see more more language leading to a pause. They're taking a noncommittal approach as opposed to a leading approach. They have told us repeatedly that stress in the financial markets is an important variable. They fail to acknowledge today that there has been much improvement in relieving the financial stress."

JOSEPH BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS,

YARDLEY, PENNSYLVANIA:

"This is the second time now under Ben Bernanke's tutelage that he's expected moderating growth to give him inflation relief. He was wrong the first time, could he be wrong the second time?

"This time he's in the credit crisis... the economy's not responding to the medicine and inflation's running away from him because the dollar's getting weak and commodities are running."

KEITH HEMBRE, CHIEF ECONOMIST, FIRST AMERICAN FUNDS,

MINNEAPOLIS, MINNESOTA:

"This is exactly what was anticipated in terms of them cutting by a quarter point and suggesting that they've already eased a lot and that should work to promote growth over time, and giving lip service to the potential risks for inflation as higher energy and commodity prices pass through.

"Clearly they reiterate their anticipation that inflation is going to remain low because of economic slack and weakness in the labour market. They're providing themselves some cover in signalling to the markets that they're not ignoring inflation risks as well.

"At least for the next couple of meetings they'll be on hold barring an unforeseen additional shake to the financial system. But I think ultimately when you look at the underlying strength of economic activity, or lack thereof, that they'll ultimately end up easing again either by late this year or early next year."

ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS GREENWICH

CAPITAL, GREENWICH, CONNECTICUT:

"The FOMC cut rates by 25 bps, hinted obliquely at a pause but left the door open for further rate cuts if needed. This is very much along the lines of consensus, but since this cut was only 78 pct priced in (based on Fed Fund futures), there is some prospect that the very short-end rate reaction is bullish, and will send a minor negative signal for the USD."

JAMES PLATZ, PORTFOLIO MANAGER, AMERICAN CENTURY INVESTMENTS,

MOUNTAIN VIEW, CALIFORNIA:

"We believe and felt strongly that a 25 basis-point reduction in the target rate was warranted. We had a high confidence they would go 25 basis points and indeed will go further.

"I would not point to any specific language in the statement itself. We believe they will keep their options open as more data becomes available.

"We think the Fed will continue to cut rates because of continuing economic weakness (driven by) factors including housing and energy prices.

"We think the range of the 2-year Treasury note yield over the coming three months will be between 1.50 percent to 2.50 percent. That's a wide range because it has had an extremely volatile, extremely rapid run-up, which we believe was overdone."

TU PACKARD, SENIOR ECONOMIST, MOODY'S ECONOMY.COM, WEST

CHESTER, PENNSYLVANIA:

"The question of whether or not they will pause is really going to depend on the forthcoming data. This is a very data-driven Fed right now. It all depends on how bad things in the economy get.

"We are seeing signs that the global economy is slowing, in France, Germany, Japan, the UK, Canada, as well as in the United States. So from that viewpoint, both the Fed and the ECB have got to be worried, though it's worth saying that there's a limit to what more rate cuts will do given the nature of the crisis. I'm not sure cutting rates alone will be enough to put a floor under the U.S. housing market, for instance."

BILL O'NEILL, MANAGING PARTNER, LOGIC ADVISORS, UPPER SADDLE

RIVER, NEW JERSEY:

"It's a bit supportive to gold, and I would say it's a bit supportive to commodities in general because there appeared to be a real fear this was going to be a Fed meeting that will clearly change the direction, but that did not happen."

"There was nothing definitive enough about it, and I really don't think that their comments on inflation has that much impact on gold."

JIM O'SULLIVAN, ECONOMIST, UBS, STAMFORD, CONNECTICUT:

"They certainly tweaked it a little bit to suggest that they would like to at least pause after this meeting but not especially forcefully so there is certainly no promise.

"In the end it still comes down to the data and the markets. We still think they're not done yet and they will keep on moving at the next couple of meetings."

PETER BEUTEL, PRESIDENT, CAMERON HANOVER, NEW CANAAN,

CONNECTICUT:

"There had been so much hope that they would say something that would give us some sort of indication that they were done with this insanity.

"Every time they cut rates and leave the door open for another cut they basically are just giving away the store when it comes to commodity prices. I hear nothing in today's comment that they are going to do anything differently. I guess that now that we lower, there is less room to cut and ultimately they will run out of room to cut.

"They had such an opportunity to send prices tumbling.

"A lot of these higher prices from the supermarket to the pump are the Fed's handiwork."

WILLIAM SULLIVAN, CHIEF ECONOMIST, JVB FINANCIAL GROUP, BOCA

RATON, FLORIDA:

"The 25 basis-points reduction to 2 percent was in line with our expectations.

"The Fed is still acknowledging that considerable stress remains in financial markets. It does not see an extensive healing process just yet in financial market conditions."

"Bonds' reaction is because the Fed is still defining the financial markets as being under considerable stress. That probably keeps alive the possibility of another rate cut in another two months. That is probably what the front end reacted to."

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