How low can you go? Well, if you are the Fed, maybe to a half of a percentage point. The Federal Reserve policy-making committee is meeting this afternoon and it is widely expected that they will cut the federal funds rate (the rate at which the banks lend to each other) from 1% to 0.5%, or even lower. The Fed is using all the tools available to encourage lending among the U.S. banks, however, the results have not been forthcoming. Could it be because the underlying problem of a mountain of bad mortgage debt that the U.S. lending institutions are still sitting on has not been dealt with? All signs are there that this recession is the worst since the economic downturn of 1981-1982, the most severe one in the U.S. of the post-World War II era. Historically, economic downturns rooted in a collapse of credit availability have had more severe, long-lasting consequences than those with other origins. (See the Great Depression in the U.S. of the 1930s, and Japan’s recession that started in the 1990 and sort of hung around for 15 years). So, it is no surprise that the Fed is desperately trying to revive the credit markets. And the markets appreciate it. The stocks rose today on the expectation of the Fed rate cut. The S&P500 Index added 2% to 886.09 by mid-morning trading, the Dow gained 129.03 points, or 1.5%, to 8,693.56. U.S. stocks fell yesterday, wiping out last week’s gains, after manufacturing reports depicted a worsening economy that analysts said will hurt earnings. The Labor Department released a report today that indicated the U.S. consumer prices fell in November to another record low. Prices across the country fell 1.7% lower than in the previous month of October. The housing starts are at the lowest point in 50 years, falling 20% in one month.