The Fed on Tuesday announced that it was reducing its target for the federal funds rate to between zero and 0.25 percent, down from 1 percent, a level that was already the lowest target rate in a half century.
And the central bank pledged to use "all available tools" to fight the current downturn. It said it was likely that rates would be kept at "exceptionally low levels" for some time to come.
"The Fed has taken some very historic steps and for the first time since this crisis began, they have gotten ahead of expectations instead of trailing behind them," said Mark Zandi, chief economist at Moody's Economy.com.
The Fed's announcement sparked a big rally Tuesday on Wall Street, with the Dow Jones industrial average jumping 360 points, or 4 percent, as investors were pleasantly surprised by the Fed's resolve to aggressively attack the country's economic woes.