Analysts expect the Federal Reserve to reduce a key interest rate

WASHINGTON (AP) -- The Federal Reserve is prepared this week to drop a key interest rate to its lowest level since President Eisenhower's second term.
The central bank would be aiming to stave off an economic threat absent since the Great Depression -- deflation, a prolonged and widespread decline in prices.
Policy-makers have mounted a virtuoso performance over the past six weeks to influence financial markets without cutting rates. That should allay any worries that the Fed is in danger of running out of ammunition to stimulate the economy with interest rates already so low.
Analysts refer to the talking campaign as the Fed's "open mouth" policy, using comments by Chairman Alan Greenspan and other members of its interest rate-setting committee to shape market perceptions about future Fed actions. The committee meets Tuesday and Wednesday, when its new cuts in the federal funds rate are expected.
Analysts see the effort as part of a play by Greenspan to maximize the Fed's effects on interest rates at a time when the central bank has little maneuvering room left with its standard policy instrument, the federal funds rate, the interest that banks charge one another on overnight loans.
Through 12 rate cuts beginning in January 2001, the Fed has pushed the funds rate down to 1.25 percent. That is the lowest since July 1961, six months after President Kennedy moved into the White House.
It is widely expected that the Fed will cut the rate again Wednesday by either one-quarter to one-half a percentage point