The US Federal Reserve is set to slash interest rates tonight as central banks around the world accelerate the fight against recession.

It is widely expected to cut rates from 1.5% to 1% or even lower, paving the way for aggressive cuts in Europe and Asia. The Bank of Japan could this week cut rates for the first time in seven years, from 0.5% to 0.25%, while the Bank of England and European Central Bank are poised to follow suit next week.

With the global economy facing a deep recession and lower oil prices easing concerns about high inflation, many observers are calling for rates to hit historic lows or even zero.

Central banks joined together earlier this month in an emergency half-point cut in interest rates as the financial crisis escalated.

In Britain, that took rates down from 5% to 4.5% and the Bank's monetary policy committee is under mounting pressure to cut rates by at least another half-point to 4% when it meets next week.

With Britain already in recession, further cuts to 2.5% or even 2% are expected by the end of next year, taking rates to 50-year lows.

In the US, anything less than a half-point cut would be a major disappointment. Commerce Department figures are tomorrow expected to show that the US economy shrank by 0.5% in the third quarter, the most since the 2001 recession. The Fed "will be very aggressive," said New York University economist Mark Gertler. "Inflation risks are off the table. The issue is now how bad the recession will be."

Former Fed Governor Lyle Gramley, now a senior economic adviser to wealth management group Stanford in Washington, said: "The predominant concern will be inadequate growth. If the economy shows additional signs of a deepening recession, I think the Fed will decide that the floor is not 1%. Zero is a possibility."

ECB president Jean-Claude Trichet this week said a rate cut from 3.75% was "a possibility" next week, a major hint to the eurozone that this will happen.