As expected, the U.S. Senate passed a modified version of the $700 billion troubled asset repurchase plan by a wide margin Wednesday night and the House of Representatives is expected to follow the Senate’s lead. Nevertheless, rate cuts may also be on the way.

Global Insight Inc. notes that the bill now moves over to the House for another controversial vote within the next day: “Pressure to pass the bill in House has mounted in the past two days as financial markets continued to demonstrate extreme stress, at least partly in response to the House defeat of an earlier version of the bill on Monday, while recent signals from the economy have been extremely weak. September auto sales plummeted to recessionary levels, while the leading ISM manufacturing indicator also saw a sharp drop indicative of recession.”

That said, the firm still says that the vote in the House will be a nail-biter, but it expects it will pass. However, it argues that the bill won’t be enough to fix the ailing U.S. economy.

Additionally, Global Insight also foresees action from the U.S. Federal Reserve Board on interest rates before the end of the month: “The evidence that the economy is in recession is plain to see, with real consumer spending expected to decline by close to 2.5% in the third quarter. The Federal Reserve needs to respond promptly.”

So, Global Insight expects the Fed will cut rates by 50 basis points before the end of October to reduce the federal funds rate to 1.50%. It also predicts a further 25 bps cut at the end of 2008 and another 25 bps cut early in 2009, ultimately lowering the funds rate to 1% by February 2009.

“Reductions in the funds rate will be immediately reflected in lower prime lending rates, which are becoming a more important benchmark in view of the extreme turmoil in LIBOR interbank borrowing markets,” it says, adding that lower interest rates “will provide support to the economy now in the form of lower prime lending rates for both consumers and businesses. In addition, lower short-term funding costs will boost operating earnings in the banking system and lead to a faster recovery of severely depleted banking system capital — the reconstitution of which is vital to restore normal credit conditions in the economy.”