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Another rate cut anticipated to cushion economy from housing slump, credit crunch

WASHINGTON - The message from Ben Bernanke and his Federal Reserve colleagues is clear: The housing slump will drag on well into next year as credit problems linger. What's not so apparent is how they'll deal with the crisis, although another interest rate cut could come this week.

In recent speeches, Fed policymakers have stressed that the country is going through a period marked by a high degree of economic uncertainty. Given that, Bernanke and his fellow policymakers have kept their options open about the Fed's next move.

Since cutting a key rate last month for the first time in just over four years, Fed policymakers have pledged to 'act as needed' to keep the economy growing and inflation in check. That broad pledge has left the door open to, among other things, another reduction to its key rate, holding that rate steady or taking more narrowly tailored action by slicing its lending rate to banks.

'We will need to be nimble,' said Donald Kohn, the central bank's No. 2 policymaker.

With the housing slump deepening, credit troubles persisting and Wall Street on edge, a growing number of investors and economists believe the Fed will lower its key rate.

The federal funds rate probably will be cut by one-quarter percentage point to 4.50 at the end of a two-day meeting Wednesday, these analysts predict. The federal funds rate affects many other interest rates charged to individuals and businesses and is the Fed's most potent tool for influencing economic activity.