In its statement, the Fed underscored its committment to use extraordinary measures, including using its balance sheet to support the credit markets.

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Fed said.

The cut in the federal funds rate pushes it to its lowest level on records dating to July 1954, and the central bank said it would likely keep it at "exceptionally low levels for some time."

"There is no more room to cut rates, as the target cannot go negative," said economist Chris Rupkey of Bank of Tokyo-Mitsubishi. "Quantitative easing will be the new way for the Fed to stimulate the economy going forward."

In addition to the rate cut, the Fed said it was prepared to expand already announced large purchases of debt issued by government-sponsored mortgage agencies to support the battered US housing market.

The program to buy $600 billion in debt and mortgage-backed securities from mortgage giants Fannie Mae and Freddie Mac already has helped pushed mortgage rates down.

The Fed, however, remained cautious about another unusual measure, which Fed Chairman Ben Bernanke first floated two weeks ago. The statement said the central bank was still "considering" buying long-term Treasury securities, which is also thought to be aimed at lowering borrowing costs by going around commercial banks.