The question on the minds of brokerage economists, now, is whether the U.S. Federal Reserve Board almost done cutting interest rates. The Fed made a modest 25 basis point rate cut this afternoon.

BMO Nesbitt Burns and TD Bank economists agree that the smaller cut, and an accompanying policy statement that pointed out the total of Fed rate cuts this year – 275 bps – indicates that the Fed is near the end of its easing cycle.

“As signaled by their mentioning the cumulative extent of easing for the first time in the statement, the Fed chose to move more slowly in view of the possibility that the lagged effects of past easing steps will soon show up,” say the economists at BMO Nesbitt Burns.

They are not convinced that the Fed has gone far enough just yet though. “The economy looks very weak to us, with manufacturing suffering severely from global economic slowing, a substantial inventory correction, and large cutbacks in capital spending. There is no question that the Fed’s more measured response will calm fears that they were easing too rapidly and threatening to produce a rising inflation trend.”

But BMO says the Fed likely has more room to cut. “In our opinion, the Fed Funds rate remains high by historical standards for a period as weak as the current situation appears to be. Markets have been very hopeful that the Fed’s past rate cuts would work quickly, and this has kept long-term interest rates high while spurring the exchange value of the dollar this year. Moreover, bank lending has been curtailed, cutting off an important channel through which the Funds rate usually impacts the economy.”

TD economists are sounding a brighter note. “The economy has yet to feel the full effect of the interest rate cuts already delivered this year, and the substantial fiscal stimulus that will start to take effect on July 1st will help bridge that gap. The combined one-time rebates and reductions in marginal tax rates are expected to boost real GDP growth by more than 1 percentage point in the second half of this year, with much of that impact felt in the July to September period. All told, given the depth of the recession in which the manufacturing sector is currently mired, the economic recovery expected towards the end of the year will be very much consumer-driven.”

TD economists are calling for another 25 bps cut at the Fed’s August meeting, ending the rate cutting cycle. BMO is more nervous, saying, “We think the Fed will find it has to do more in coming months. Still, there is no sense getting ahead of ourselves. The Fed does not know for sure and the data will guide future policy.”