The Federal Open Market Committee of the Federal Reserve, as expected, decided today to lower its target for the federal funds rate 50 basis points to 3%, bringing the total amount cut from that rate to and unprecedented 1.25 percentage points in a little more than a week. Stocks immediately surged on the news, slipped back, then rose and slipped back again to close with the Dow down 0.3%.

The fed also shaved 50 basis points from its discount rate to 3.5%, which is the rate charged to banks who borrow directly from the Fed. The funds rate applies to overnight loans of funds on deposit at the Federal Reserve by banks to other banks.

In its statement announcing the cuts, the FOMC cited continuing "considerable stress" on the financial markets and added "recent information indicates a deepening of the housing contraction as well as some softening in labor markets."

The Fed said it expected inflation "to moderate in coming quarters" but said it would continue to monitor inflation "carefully." It again stated that "downside risks to growth remain."

The rate cut was widely expected on Wall Street, which reacted with a quick spike in the Dow Jones Industrial Average followed by a pullback, then a slower climb before dropping on a Fitch downgrade of the so-called monoline bond insurers. Builder stocks fell after rising sharply during the past week and a half. The S&P home builder ETF XHB (AMEX) closed off 5.49% at $20.32.