The U.S. central bank has cut its main interest rate one quarter of a percentage point to two percent, while hinting that this may be the last rate cut for a while.
In a statement accompanying the decision Wednesday, the Fed said tight credit and a slumping housing market will continue to affect growth. It said it is ready to act "as needed." The Fed also warned that uncertainty about inflation remains high, although it expects inflation to moderate as the costs of energy and other commodities level off.
This is the seventh time since last September that the central bank has lowered the federal funds rate - the rate that banks and other depository institutions charge when they lend money to each other, usually on an overnight basis.
Earlier, the U.S. Commerce Department said the economy grew at a rate of 0.6 percent in the first quarter of 2008.
The department's report on gross domestic product, the total of all goods and services produced, said growth between January and March kept pace with the previous three months.
There have been concerns the U.S economy is slipping into a recession, a period defined by two quarters of negative economic growth.
The chairman of the U.S. Senate Joint Economic Committee, Democrat Charles Schumer, argued that the data shows the economy has "stalled" and that 90 percent of Americans are experiencing a recession.
White House spokeswoman Dana Perino said President George Bush is not satisfied with the slow growth rate. She also said tax rebates that started going out to Americans this week will help spur the economy.
The Commerce Department report said consumer spending, which accounts for about two-thirds of U.S. economic activity, rose at the smallest rate, one percent, since the second quarter of 2001.
U.S. stocks added to early gains Wednesday following the Federal Reserve's announcement, but later ended down. Oil prices dipped further.
Some information for this report was provided by AFP, AP and Reuters.