The actions by Fed chairman Ben Bernanke and his colleagues on Tuesday put the central bank on track towards the kind of extraordinary actions used by Japan to stave off deflation and fire up growth in the 1990s.

The central bank's Federal Open Market Committee lowered its target federal funds rate from 1.0 per cent, already at a historic low, to a range of zero to 0.25 per cent.

It also predicted "exceptionally low" rates to persist "for some time".

"This is an historic move and it will go down in the annals of Fed history as the most aggressive attempt ever to reverse a deep recession, prevent deflation and spur financial market re-normalisation," said Sherry Cooper, chief economist at BMO Capital Markets.

Cooper said that while the Fed is "running out of basis-point ammo," it will shift to other steps such as buying assets such as mortgage or Treasury securities or anything else to get credit flowing.

"The Fed is set to take extraordinary steps to boost the quantity of money in the world's largest economy. The Fed is using its own balance sheet as a tool of monetary policy," she said.

Cary Leahey, senior economist at Decision Economics, said the Fed "came out swinging and probably did as much as you could expect them to do" to revive economic growth.

The moves to buy up troubled assets, Leahey noted, is part of a strategy economists call "quantitative easing," as used by the Bank of Japan but effectively means printing money.

"They're pulling every lever and pulling them hard," he said. "They are going to print money until they get a reaction from the economy."

Eugenio Aleman, economist at Wells Fargo, said the cuts were "completely symbolic" because financial markets have already been pricing in rates near zero.

"The effective federal funds rate has been lower than 25 basis points for the last month and half so this is just agreement with the market," he said. "This is what the market wants."

Still, Aleman termed the Fed's actions "very wise".

"They are not dropping rates to zero but are conducting monetary policy as if it was zero," he said. "They are not saying it is at zero which might be a bad omen for the economy."

More significantly, according to analysts, the Fed said it would take other steps to stimulate lending and economic activity, including large purchases of mortgage securities to help unblock credit.

Ryan Sweet at Economy.com said the Fed has opened up a new strategy in its fight against the credit crisis.

"Under a quantitative monetary regime, the Fed will focus directly on the quantity of money in the system rather than on working indirectly through the price of credit - that is, interest rates," he said.

"Most importantly, the statement addressed concerns that the central bank is running out of ammunition. The Fed outlined new and possible unconventional actions it can take to address strains in financial markets."

Joel Naroff at Naroff Economic Advisers said the Fed strategy is the correct one.

"Basically, it appears that the Fed is going to show the private sector what is the true level of risk that exists in all the markets that no longer operate normally," he said.

"After a while, the success (hopefully) of the Fed's actions will prove to the private sector that there are reasonable risks that can be taken. How long that will take is anyone's guess, but by keeping credit flowing, the Fed will be buying time for banks to heal and the economy to regain some footing."

But Robert Brusca at FAO Economics said it remains unclear whether the effort will work.

"Isn't that one of the things that got us into this mess - rates that were too low? Why use that as a solution?" Brusca said.

He pointed out that the Fed actions "seem to have no impact on mortgage rates" and many other lending.

"This is another action that does not seem to get at what ails us - the housing market. Maybe it will work, but with a delay. So far we have no hint that it will."

AFP