INSTANT VIEW: Fed cuts fed funds rate to zero-0.25 pct

NEW YORK (Reuters) - The U.S. Federal Reserve on Tuesday cut its target for overnight interest rates to zero to 0.25 percent, bringing it closer to unconventional action to lift the economy out of a year-long recession.

KEY POINTS OF STATEMENT: * The Federal Open Market Committee decided to establish a target range for the federal funds rate of 0 to 1/4 percent. * Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. * Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further. * Meanwhile, inflationary pressures have diminished appreciably and are expected to moderate further in coming quarters. * The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability and expects exceptionally low levels of the federal funds rate for some time. * As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. * The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.

COMMENTS:

CRAIG PECKHAM, EQUITY TRADING STRATEGIST, JEFFERIES & COMPANY, NEW YORK:

"The forceful language to really use its balance sheet rather aggressively to inject liquidity in the market is tantamount to quantitative easing. The Fed is pulling another arrow out of its quiver.

"Stocks like the fact that the Fed is moving forcefully to really inject more liquidity here in the economy and stimulate growth."

BRUCE MCCAIN, CHIEF INVESTMENT STRATEGIST, KEY PRIVATE BANK, CLEVELAND, OHIO:

"I think what the Fed has said basically here is that interest rates are no longer relevant: we will set it essentially at zero and from here on out we will purchase whatever securities we think are needed to get the credit markets going again and get the economy going again."

"The Treasury market has been taken a little bit by surprise."

"I think the (market) fears of deflation are probably overstated, because ultimately the quantitative easing has major inflationary potential."

JOCELYNN DRAKE, MARKET ANALYST, SCHAEFFER'S INVESTMENT RESEARCH, CINCINNATI, OHIO:

"The rate cut was definitely more than a lot of people were expecting and that's really helping the market here, but the big take away here is Bernanke's going back out into the market and trying to loosen things up in the credit arena.

We've got a Fed that's willing to really go the distance for the market right now."

JESSICA HOVERSEN, FIXED INCOME MARKET ANALYST, MF GLOBAL RESEARCH, CHICAGO:

"They brought the down the target to where the effective rate has been trading. They are looking at buying longer Treasuries to bring down mortgage rates.

"The Fed has realized that there is one entity left to bring the financial system in line. It has to be the Atlas of the world to bear the weight of the financial system on its shoulder.

"This concoction of solutions can be pretty potent if it's done properly. This is not inflationary until the banks start lending.

"The short-term impact of this statement is bearish for the dollar. I would have a cautious position in the euro but the fundamentals in Europe are a disaster."

GREGORY MILLER, CHIEF ECONOMIST, SUNTRUST BANKS INC, ATLANTA,

GEORGIA:

"This allows them to directly effect specific indexes or market rates, for example mortgage rates. When they talk about targeting the longer end of the Treasury curve, that's where conventional mortgage rates are indexed. It's pretty clear that they are concerned about reconstituting the mortgage market to try to get housing back under way,

"It does provide banks with access to additional liquidity at lower costs, so that's lowering costs for banks to acquire funds. That will be good for banks' capital, but it doesn't directly encourage those same banks to utilize that new capital to get business capital spending and housing markets on track."

HAAG SHERMAN, CO-FOUNDER, MANAGING DIRECTOR, SALIENT PARTNERS, HOUSTON, TEXAS:

"The Fed has been sending a message it will throw everything it has at deflation. The decision is setting the Treasury market rallying because of a more dramatic move than the market expected."

"The effective fed funds rate has been within that range for some time."

MICHAEL STRAUSS, CHIEF ECONOMIST, COMMONFUND, WILTON, CONNECTICUT:

"The big thing that we were looking for from this was signs of quantitative easing and that is exactly what they are doing."

NAUMAN BARAKAT, SENIOR VICE PRESIDENT, MACQUARIE FUTURES USA:

"The fact that the Fed cut rates by 75 basis points rather than the consensus of 50 points seems to indicate that perhaps the economy needs major, major overhaul that is bigger than expected earlier. That translates into lower demand for crude oil ... Prior to the announcement crude was up and as soon as the announcement came we fell."

DANIEL PENROD, INDUSTRY ANALYST, CALIFORNIA CREDIT UNION

LEAGUE, RANCHO CUCAMONGA, CALIFORNIA:

"The bond market is rallying because it is looking at historically low official rates. In the 94 years of the Federal Reserve system, short-term rates have never officially dropped below 1 percent. Money funds that up to this point have waived their fees and lived solely off of the interest rate can no longer do that when the rate is at virtually zero.

"The Fed did this to match what was currently going on in the market. The real federal funds rate had been roughly 13 basis points for the last two weeks. And because of that it's the tail wagging the dog with the Federal Reserve following the market versus the other way around."

MATT ESTEVE, FOREIGN EXCHANGE TRADER, TEMPUS CONSULTING, WASHINGTON:

"You've seen the dollar weaken because it was a larger than expected cut. The dollar is falling against all major currencies. On one side, we effectively have a zero interest rate in the U.S. On the other side, the Fed has sent a sign that they are obvious ready to use all tools to help the U.S. economy out of recession. In the long run, the hope is this will be stimulative to the U.S. economy."

DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL RESEARCH.COM, SHREWSBURY, NEW JERSEY:

"Essentially, they're just addressing reality. Treasury rates are basically already trading much lower than the federal funds rates...

"The real message is question, I never thought the target was that important, it was the message. The message is they're instituting quantitative easing on a fairly large scale.

"That's what (the stock market) wanted to hear. The rates are almost irrelevant... What really wanted to hear is that this quantitative easing was going to be done, and the Fed didn't run out of bullets."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, THE BANK OF NEW YORK-MELLON, NEW YORK:

"It's a highly unorthodox and creative step. We felt strongly that this would be the last rate cut of the cycle, leading into quantitative easing and Obama's stimulus plan early next year. I don't think the market has had sufficient time to digest fully the ramifications of this decision. But we think it's the best possible move for the U.S. consumer and for the financial market."

MARKET REACTION: STOCKS: U.S. equity indexes extends gains after Fed sets funds target rate of zero to 0.25 percent. BONDS: U.S. 30-year Treasury bond prices rise . DOLLAR: U.S. dollar falls versus euro, pushing euro above

$1.39. RATE FUTURES: Short-term rate futures jump.