The US Federal Reserve is widely expected to cut rates again today after it emergency half-point rate cut earlier in the month in an effort to boost the flagging economy.

Financial markets are pricing in a half-point cut, taking the rate down to 1 per cent — the lowest in four years.

Geoff Dicks, chief UK economist at RBS, said: "Opinion has gelled behind the Fed cutting its target rate by 50 basis points later today. The general view is that the market expects 50 basis points and disappointing the market in the current climate is not an option."

But some economists are calling for a full-point cut to take the rate to 0.5 per cent, the lowest since 1954.

Others say that a half-point cut may be enough this month but it will need be followed swiftly by another reduction before the end of the year to reduce the impact of the looming recession by boosting interbank lending.

Augustine Faucher at Moody’s Economy.com said: "Further rate cuts would make it very inexpensive for banks to borrow from one another. The Fed is hoping that low rates, along with efforts to increase liquidity, will spur greater lending and borrowing, unfreezing credit markets."

The Federal Open Market Committee, headed by chairman Ben Bernanke, is expected to announce a decision around 6pm this evening.

Some analysts predict that UK rates could also be cut to record lows as the Bank of England battles to stop inflation dipping below the target rate of 2 per cent. Capital Economics says that interest rates could be as low as 1 per cent next year.

Jonathan Loynes, of Capital, said: "With the current recession likely to be deeper than that in the early 1990s and the credit crunch impairing the effectiveness of monetary policy, we now expect UK interest rates to fall to an all-time low of just 1per cent."

The sharp falls are tipped to start next week. Simon Ward, of New Star, says that rates could be cut by a full percentage point to 3.5 per cent. "My MPC-ometer continues to project a reduction of 75-100 basis points, with a full-point move likely if three-month Libor is above 5.75 per cent at the time of the meeting.”

The Bank of England's monetary policy committee is due to announces its rate decision next Thursday.

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