The Central Bank said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 per cent. That is down from the 1 per cent target rate in effect since the last meeting in Oct. Many analysts had expected the Fed to make a smaller cut to 0.5 per cent.
The Fed also made clear that it intends to keep the funds rate at extremely low levels.
"The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the Central Bank's panel that sets interest rates said in a statement.
The Fed's decision is expected to be quickly matched by a reduction in banks' prime lending rate, the benchmark rate for millions of business and consumer loans. Before the Fed announcement, the prime rate stood at 4 per cent.