IF WAGES AREN'T RISING/PRODUCTIVITY FALLING, THERE IS NO INFLATION THREAT:

Financial woes push Fed to eye interest rate cut: Drop would be lowest since '04 (Jeannine Aversa, 10/27/08, ASSOCIATED PRESS)

So far, Fed Chairman Ben S. Bernanke and his colleagues haven't been able to break the vicious cycle, despite hefty rate reductions and a flurry of unprecedented steps aimed at getting credit flowing more freely again.

Mr. Bernanke says he'll use all tools to battle the crisis.

To that end, Fed policymakers are widely expected to lower the central bank's key interest rate at the conclusion of a two-day meeting Wednesday - their last session before the November elections.

Investors and some economists predict that the central bank will drop the rate by half a percentage point to 1 percent. If that happens, it would mark the lowest rate since the summer of 2004. Others, however, think the rate will be cut by a smaller, quarter-point to 1.25 percent.

In turn, rates on home equity, certain credit cards and other floating-rate loans tied to commercial banks' prime rate should drop by a corresponding amount.

A half-point reduction would leave the prime rate at 4 percent; a quarter-point cut would drop the rate to 4.25 percent. Either way, the prime rate would be the lowest in more than four years.

The Fed hopes that lower rates will spur people and businesses to spend again, helping to brace the wobbly economy.

"I think it would be a good faith psychological move," said Richard Yamarone, economist at Argus Research.

With the cost of everything dropping, 4% is usurious,

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