WASHINGTON — The Federal Reserve is expected to slash interest rates again today, perhaps by as much as 1 percentage point, as it continues its efforts to ease a credit crisis and serve as a virtual safety net for Wall Street investment bankers.

The Fed is trying to stave off a repeat of the collapse of investment banking giant Bear Stearns Cos., which prompted an emergency rate cut Sunday and a controversial move to help arrange a deal to sell the well-known firm to J.P. Morgan Chase & Co. at the rock-bottom price of $2 a share.

Wall Street is all but certain that a cut of at least three-quarters of a percentage point is coming and hopes for a full percentage point, which would put the Fed's short-term "federal funds" rate at 2 percent. That would bring the prime rate, which banks charge to their best customers, down to 5 percent.

"We continue to expect the funds rate eventually will reach 1.5 percent," said Mickey Levy, chief economist of Bank of America, in a note to investors.

What such low interest rates would mean for consumers isn't clear, since banks aren't lending because of turmoil in the credit markets. Instead, they are hoarding capital to shore up their balance sheets.

Lower rates could bring down some variable rates on credit cards — but credit card companies have been raising rates out of fear that the economic downturn will lead to more loan defaults.

The falling rates could help ease the sting for homeowners whose adjustable-rate mortgages are about to reset higher.

But many of these loans adjust based on factors not directly tied to the Fed's benchmark rate.

The Fed has already cut the funds rate, from 5.25 percent last September to 3 percent in January. So far that's done little to revive the economy, which has been in increasing turmoil since August.

The Fed has also made available more than half a trillion dollars in credit to banks and securities dealers in hopes of spurring lending and preventing credit markets from seizing up.

The stock market edged higher yesterday after the central bank's move Sunday to salvage Bear Stearns. After an up-and-down day, the Dow Jones Industrials climbed 21.16 points to 11,972.25. The S&P 500 fell 11.54 to 1,276.60.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, praised the Fed's decision and said that if it had not acted, the market could have plunged sharply, especially if Bear Stearns had been forced into bankruptcy.

But with this action, the Federal Reserve has turned itself into Wall Street's safety net. It's a new and controversial role that could be expensive if it doesn't succeed in easing the credit crunch and more Wall Street firms get into trouble.

"We are in uncharted waters," said Joel Naroff, a Holland, Pa., economic consultant.

RISKY NEW LENDING ROLE

Chairman Ben Bernanke announced Sunday night that Wall Street's largest investment banks could borrow directly from the Fed just as commercial banks now do — and use questionable collateral, such as mortgage-backed securities.

Many critics say that the central bank is pledging to rescue Wall Street without demanding an end to excesses that contributed to today's jittery markets, creating a "moral hazard" that could lead to more excesses.

"The Federal Reserve continues to give aid to the irresponsible," said Peter Morici, business professor at the University of Maryland.

Other critics said the U.S. government seemed much quicker to bail out Wall Street bankers than people who cannot afford their mortgages.

As it moved Sunday to bring about the sale of Bear Stearns, the Fed allowed the buyer to use Bear Stearns' mortgage-backed securities as collateral for some $30 billion in financing.

The central bank also reduced the interest rate on these loans by 3.25 percent and lengthened the payback term from 30 to 90 days.

Asked whether the Fed and the administration seemed more inclined to bail out big banks than people facing a home foreclosure, Treasury Secretary Henry Paulson noted that Bear Stearns stockholders are going to lose money on their investments.

Dodd has proposed legislation that would provide government insurance to refinance troubled mortgages. "Until we help the people on Main Street, the problem on Wall Street will not be resolved," Dodd said.

The Chicago Tribune and McClatchy News Service contributed to this report.