Ben Bernanke's Federal Reserve is proving it's not afraid to move aggressively. Criticized for being too tentative after the credit crisis...

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WASHINGTON — Ben Bernanke’s Federal Reserve is proving it’s not afraid to move aggressively.

Criticized for being too tentative after the credit crisis first erupted last August, Chairman Bernanke and his central-bank colleagues have significantly picked up the pace this year.

They have delivered a series of hefty interest-rate cuts and taken other unprecedented actions to supply money to cash-strapped financial institutions.

The Fed on Tuesday slashed a key interest rate by three-quarters of a point, wrapping up its most aggressive two months of rate cuts in a quarter-century.

The strong action certainly boosted spirits on Wall Street, pushing the Dow Jones industrial average up by 420.41 points in its biggest one-day point gain in five years. Investors took heart that the central bank will do whatever it can to keep the country out of a recession.

While the cut was larger than the Fed’s normal quarter-point moves, investors were initially disappointed it wasn’t a full percentage point.

The Dow fell 100 points within two minutes of the Fed’s midafternoon announcement but then turned up nearly 200 points within a half-hour.

It had been up 286 points just before the announcement due to Lehman Brothers and Goldman Sachs reporting better-than-expected results for the first quarter. That came as welcome news after the collapse of fellow investment bank Bear Stearns, which was forced into a Sunday fire sale to JP Morgan Chase.

The Dow ended Tuesday’s session at 12,392.66

The latest Fed move brought the federal-funds rate — the interest that banks charge each other — down to 2.25 percent, the lowest since late 2004, to lower borrowing costs and boost spending by consumers and businesses and thus increase economic activity.

The Federal Reserve has now cut its funds rate by three-fourths of a percentage point twice this year. The first was Jan. 22 after an emergency meeting and was followed by a half-point cut at a regular meeting Jan. 30.

The three rate cuts over the course of two months represent the most aggressive Fed credit easing since mid-1982 when the Paul Volcker-led Fed worked to get the country out of a deep recession.

Bernanke and his colleagues have now cut the funds rate six times since September, with the reductions becoming more aggressive since January as the central bank has faced growing turmoil in global financial markets.

The Fed also announced Tuesday it was reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a point, pushing this rate down to 2.5 percent.

That cut, which followed a quarter-point reduction in the discount rate Sunday, was a clear signal the Fed is ready to supply significant amounts of credit in direct loans to banks and other institutions through its discount window to stabilize financial markets roiled by the collapse over the weekend of Bear Stearns, the nation’s fifth-largest investment bank.

“We had been on the brink of the biggest financial meltdown this country had ever seen, but I think the Fed has now turned the psychology around,” said David Jones, chief economist at DMJ Advisors. “The Fed is saying it is ready to supply all the emergency credit banks need to get us out of this crisis.”

Many analysts said they believed the Fed may cut rates only once more, perhaps by a more ordinary quarter-point at the next meeting, then sit back and see if economic-stimulus checks that will begin arriving at 130 million households in May will do the trick along with the rate cuts to jump-start the economy.

Still, the Fed’s rate-cutting campaign hasn’t put people into a better frame of mind where they are more willing to spend. Instead, they have hunkered down, adding to the economy’s problems.

“Maybe the public is saying, the Fed can’t really do much about the impending recession,” said Victor Li, an economics professor at the Villanova School of Business.

The Fed’s lifelines — through interest-rate cuts and other moves — probably won’t pull the country back from the brink of its first recession since 2001. Many believe the country is already there.

With jobs harder to come by, most people probably will feel skittish for a while.

Employers slashed 63,000 jobs in February, the most in five years. It was the second month in a row of nationwide job losses. The unemployment rate, now 4.8 percent, is expected to rise to 5.5 percent later this year.

Many believe the market’s volatility will persist for some time, too.

“Volatility is to be expected. You’ll have good news one day, bad news another day. The market is trying to find a stable point in being buffeted by good and bad revelations of matters involving credit,” said Marvin Goodfriend, economics professor at Carnegie Mellon University.

Just a week ago, Wall Street soared by nearly 417 points — the biggest rally since 2002 — when the Fed unveiled an innovative way to deal with the worsening credit crunch — letting big Wall Street firms borrow up to $200 billion in ultra-safe and much-in-demand Treasury securities and pledge harder-to-sell mortgage securities as collateral.

The euphoria was short-lived, and investors fell back into a nervous funk.

A few days later, the Fed, in a rare use of authority dating back to the Depression-era days of the 1930s, backed a rescue package of venerable investment bank Bear Stearns, which teetered on the brink of collapse.

Wall Street, however, tumbled nearly 195 points as the Fed’s action stoked concerns about the severity of credit troubles and whether other big financial firms might falter.

Sunday, the Fed took more bold actions — including backing JP Morgan’s takeover of Bear Stearns and guaranteeing up to $30 billion in troubled mortgages and other assets that brought about Bear Stearns’ downfall. Critics contend it’s akin to a government bailout.

There was opposition to Tuesday’s decision, which was approved on an 8-2 vote. Richard Fisher, president of the Dallas Fed regional bank, and Charles Plosser, president of the Philadelphia regional bank, both dissented, preferring less-aggressive moves.

It marked the first time there have been as many as two dissents since a September 2002 meeting.

However, there has been no apparent change in the stance of Bernanke and the majority of Fed members that at the moment the greatest threat to the economy is from a possible recession, which may have already started, rather than from inflation that might be kindled by low rates.

“The Fed’s statement signaled that the risks still are very much on the downside and they are willing to do whatever is necessary to make sure the economy doesn’t slide away,” said Mark Zandi, chief economist at Moody’s

In explaining its actions, the Fed said it was having to navigate a difficult policy environment that included sluggish economic activity and rising inflation pressures. It said anew it was prepared to take further actions.

“Financial markets remain under considerable stress and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” the Fed said in its statement.