As expected, the U.S. Federal Reserve Board today announced it is cutting the key federal funds rate by 50 basis points to 3% and economists say that the Fed likely isn’t done yet.

The Federal Open Market Committee voted 9-1 to lower the federal funds rate at which banks lend to each other to 3% from 3.5%. The funds rate stood at 5.25% as recently as September.

The Fed also lowered the discount rate it charges banks that borrow directly from it by a half point to 3.5%.

In its accompanying statement, the Fed said “Recent information indicates a deepening of the housing contraction as well as some softening in labor markets.”

The Fed added it “expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.”

TD Securities senior economist Charmaine Buskas says this comes as no surprise, in light of today’s GDP report showing core PCE was up 2.7% on the quarter. “It is clear the Fed cannot relegate inflation risks entirely to the back burner at this time,” she said in a note following the rate cut announcement.

“Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Federal Open Market Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks,” said the Fed.

Earlier today, the the U.S. Commerce Department said the U.S. economy hit the brakes in the fourth quarter, growing at an annualized rated of just 0.6%.

The fed funds rate is now down to 3%, after the 125 bps of relief in the last week. Yet, economists suggest that U.S. rates could still go lower, if policymakers deem it necessary.

National Bank Financial notes that while today’s move was not unanimous (one governor, from the Dallas Fed, Richard Fisher, would have preferred keeping rates unchanged), the accompanying policy statement is very similar to the one published after last week’s inter-meeting rate cut.

“Though the Federal Reserve acknowledges that actions taken so far should help promote growth – it has after all cut rates by a massive 225 basis points since September 18 – it nonetheless still views downside risks to growth,” NBF says.

TD Bank agrees that the tone of the communiqué was dovish on balance, but it suggests it was a bit less so than in the statement on January 22.

“Critically, the FOMC statement retained the open-ended commitment to provide more interest rate relief if necessary, which will reassure jittery investors,” comments BCA Research.

BCA notes that the market is currently discounting a slightly negative real fed funds rate in one year, “which is not overly aggressive in our view given the economic and financial risks.”

“The speed of rate cuts will depend crucially on payrolls and the evolution of credit market tensions. Another jump in the unemployment rate and/or a spreading of credit market dislocation would spark further aggressive Fed action,” BCA concludes.

“In our opinion, most members of the FOMC are well aware that in order to ensure that the highly-leveraged U.S. economy does not go into a tailspin, real interest rates must be brought to zero. At this time, we still see the fed funds bottoming at 2.50% later this spring, especially if Congress allows the fiscal stimulus to proceed quickly,” it concludes.