The Federal Reserve on Tuesday decided to cut a key interest rate by 0.75 percentage points to 3.50 percent to fend off a possible economic recession, the biggest one-day move by the central bank in recent memory.

"While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households," the Fed said in a statement.

"Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets," it added.

The U.S. central bank also expected inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

"Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks," the Fed said.

The Fed decision was taken during an emergency telephone conference with Fed officials on Monday night, according to U.S. media.

Global financial markets plunged Monday and Tuesday amid worries over a possible U.S. economic recession.

The Fed Tuesday morning made the emergent move before markets opened, hoping that the bold move would limit the decline in U.S. stocks. U.S. markets were closed Monday for the Martin Luther King holiday.

In a related move, the Fed also lowered the discount rate it charges on direct loans to banks to 4 percent.

The Fed said the voting for the emergent monetary policy action were Chairman Ben S. Bernanke; Vice Chairman Timothy F. Geithner; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; EricS. Rosengren; and Kevin M. Warsh.

Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Frederic S. Mishkin was absent and not voting.

Editor: Yan