As expected the U.S. Federal Reserve Board delivered a 50 basis point cut to U.S. interest rates today. The federal funds rate is now 4.0%, a seven-year low.

There was some debate on the Street as to whether the Fed would go for a 50 bps cut, or a 25 bps move in light of recent economic data.

The Fed also retained its downward bias for interest rates. Pundits had suggested that even if the Fed went for a larger cut, it would move the bias to neutral, or at least indicate some fear of inflation.

The Federal Open Market Committee cut both the federal funds rate and the discount rate by 50 bps. It its statement the Fed noted, “The committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.”

The continued rate cutting attitude comes as the slowdown appears to gain traction. It notes, “A significant reduction in excess inventories seems well advanced. Consumption and housing expenditures have held up reasonably well, though activity in these areas has flattened recently. Investment in capital equipment, however, has continued to decline. The erosion in current and prospective profitability, in combination with considerable uncertainty about the business outlook, seems likely to hold down capital spending going forward. This potential restraint, together with the possible effects of earlier reductions in equity wealth on consumption and the risk of slower growth abroad, continues to weigh on the economy.”

The Fed indicated that it is not worried about inflation, expecting that the slowdown will take care of much of it. “With pressures on labor and product markets easing, inflation is expected to remain contained. Although measured productivity growth stalled in the first quarter, the impressive underlying rate of increase that developed in recent years appears to be largely intact, supporting longer-term prospects.”