The U.S. Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4.5%.

Today’s cut, which was widely anticipated by financial markets, is the second rate reduction this year.

The Fed also cut rates by a surprise 50 bps in September.

In today’s accompanying statement, the Fed said “the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.”

“Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time,” the Fed said.

The Fed warned that some inflation risks remain, and said it will continue to monitor inflation developments carefully.

“The upside risks to inflation roughly balance the downside risks to growth,” the Fed said.

Following today’s rate cut, Bay Street economists now see the Fed moving to a neutral stance on monetary policy.

Economists believe the Fed is coming to the end of that cycle, which was largely sparked by the credit crunch in August.

“Although the Fed chose to move interest rates lower, the accompanying text implied little inclination to move further on interest rates,” notes RBC Economics. It also points out that the decision was not unanimous, with one FOMC member dissenting in favour of no change in the rate.

“With this cut and the comments provided by the Fed, we are assuming that Fed funds will be held unchanged at 4.50% in the near-term. This is premised on the view that, although growth may be halved in the fourth quarter compared to the third-quarter’s 3.9% rate reported this morning, activity will bounce back going into 2008,” RBC says. “If indications emerge that growth remains subdued next year, the Fed is likely to introduce further ease.”

TD Securities also says that the tone of the statement suggests that the Fed will remain on hold for the near term. “With this decision out of the way, and a fairly balanced statement, the Fed has provided another dose of stimulus,” it says. “But it appears that this is the last that the Fed plans to deliver. It left future moves largely open ended as it made no mention of what it intends.”

“The decision today will further ease concern that the Fed has not abandoned the market in its time of need. This move was clearly to forestall some of the adverse effects of tightening credit conditions. They are not in damage control mode, in any manner. But that said, the fact that the Fed did not outline a detailed plan for the future suggests that it will allow the much needed catharsis of risk repricing to occur on its own,” TD concludes. “In our view, we expect this to be the last rate cut by the Fed through the next several quarters.”

“The Fed could not have introduced a more symmetrical bias to its press release,” adds National Bank Financial. “As far as we are concerned we still see below-trend growth and the unemployment rate breaking above 5% in early 2008. In that context today’s neutral bias will have to be revised going into the New-Year. Thus we stick to our 3.75% target rate for 2008.”

The Fed’s next, and final meeting of the year, will be in December.