If you’re seeking good economic news, the Federal Open Market Committee’s (FOMC’s) statement explaining its 50 basis point reduction in the federal funds rate is not the place to look. The reduction to 1.0 percent — the second 50 basis point reduction in a month — is the Fed’s latest effort to revive a failing economy that is in danger of undergoing the worst collapse since the Great Depression. In addition to its federal funds action, the Fed announced a 50 basis point decrease in the discount rate to 1.25 percent.

“The pace of economic activity appears to have slowed markedly,” the FOMC wrote, “owing importantly to a decline in consumer expenditures.”

Unfortunately, that’s not all. The FOMC statement continued, “Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports.”

Moreover, the Committee warned, “the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

More Cuts Ahead?

The FOMC statement, which included a lengthy list of recent policy actions — including coordinated rate cuts with other central banks, “extraordinary” liquidity measures, and steps to strengthen financial systems — indicated that the FOMC is open to cutting the benchmark rate even further. “The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability,” the statement said.

“You keep priming the pump, you keep hoping that eventually you will get water,” said American Bankers Association economist Keith Leggett, who described the latest rate action, however necessary, as “pushing on a string.”

Independent Community Bankers of America chief economist Paul Merski said the rate cut’s effect will be slight because “the real problem is the velocity of money. Money is just not in motion in this current economic climate and the Fed is trying to compensate by cutting rates.”

Merski suspects the Fed is aware of this. “It was revealing that Chairman Bernanke gave positive support for another economic stimulus package recently to add in fiscal policy when monetary policy is having a limited effect,” he said.

More Bad News

The FOMC statement preceded by one day the Commerce Department announcement that economic growth contracted by 0.3 percent in the third quarter. The decrease was largely the result of the sharpest cutback in consumer spending in 28 years and a reduction in business investment, the Department reported.

The third quarter contraction in the nation’s gross domestic product, the steepest since the same quarter of 2001, signals the likely start of a measurable recession for an economy that has been struggling for more than a year.

For banks, the economic news probably will mean more delinquencies and write-offs as the job market continues to soften. For the Treasury and the Fed, it will probably mean a continuation of the efforts to find something — anything — that will turn this economy around.