Fed starts meeting as markets eye rate cut

WASHINGTON (Reuters) - Federal Reserve policy-makers started a one-day meeting on Tuesday that was widely expected to end with Chairman Ben Bernanke's first interest rate cut.

The rate-setting Federal Open Market Committee began its sixth meeting this year at about 8:30 a.m., a Fed official said. A statement outlining the committee's decision is due at about 2:15 p.m.

Investors expect the Fed to cut its target for the overnight interbank federal funds rate by either one-quarter or one-half percentage point from the current 5.25 percent, where it has been since June 2006. It is also expected to trim the discount rate it charges for direct loans to banks.

Wall Street desperately wants a rate cut to help offset tightening credit conditions and inspire confidence in global financial markets, which have been rocked by troubles in subprime mortgages and commercial paper.

Signs of economic trouble, including a surprising drop in U.S. jobs in August and soft retail sales data, have provided room for the Fed to shift its focus from stamping out inflation to keeping the economy growing. Many economists, including former Fed Chairman Alan Greenspan, say the risk of recession has increased amid the latest market turmoil and eroding house prices.

Once the Fed tilts policy in a new direction, a series of rate moves are usually in store, but the size and speed of subsequent shifts in credit costs can vary. Investors will scour the statement the Fed will issue announcing its rate decision for signs of how aggressively the central bank will move in coming months.