Updated from 4:12 p.m. EDTStocks tumbled across the board Wednesday after the Federal Reserve chose to cut interest rates by a quarter point and said it was prepared to take more action if inflation doesn't pick up. The Dow Jones Industrial Average closed down 98 points, or 1.08%, at 9011 while the Nasdaq was down 3 points, or 0.2%, at 1602. The S&P 500 was down 8 points, or 0.8%, at 975. Shortly before the Fed's announcement at 2:15 p.m. EDT, the Dow and Nasdaq had been up about 20 points. But the Nasdaq began to trim its gains and the Dow moved into negative turf after the central bank said it was cutting rates by 25 basis points, bringing the fed funds rate to a 45-year low of 1%. The Fed also cut the discount rate by a quarter point. It now stands at 2%. Investors had been divided over whether the central bank would reduce rates by 25 or 50 basis points but some market participants had hoped for soothing words from the Fed regarding the outlook for inflation. They were disappointed. Although the central bank said it believes financial conditions have improved and productivity remains strong, it also noted that "the economy has yet to show sustainable growth." Moreover, it repeated that the probability "of an unwelcome substantial fall in inflation exceeds that of a pickup in inflation from its already low level." "The overall risk assessment is that the concern over deflation overrides everything else," noted Merrill's chief economist David Rosenberg, who had called for a 50 basis point ease. Still, Ashraf Laidi, chief currency analyst at MG Financial, interpreted the Fed's statement more optimistically. In its May 6 announcement, the Fed said, "recent readings on production and employment?have proven disappointing." This time around, it said labor and product markets are "stabilizing," Laidi noted. Barry Berman, head of Nasdaq trading at Robert W. Baird & Co., said the decision was more or less a "nonevent" for the market. "Some investors may have been disappointed that the Fed didn't talk more positively about the economy but I don't think they said anything really dramatic," he said. Nevertheless, stocks declined and bonds plunged on the news, with the 10-year note falling 1 1/8 to yield 3.39%. Many investors in the bond market had been hoping for a more aggressive rate cut. The economic data Wednesday was mixed. Sales of new U.S. homes rose 12.5% in May to a record 1.157 million annual rate. Economists had expected sales to rise to an annual rate of 1.040 million. Meanwhile, existing-home sales rose 1.2% in May to a seasonally adjusted annual rate of 5.92 million units. Again, that was above economists' expectations, which called for an annual rate of 5.90 million units. Still, durable-goods orders unexpectedly fell 0.3% in May after a 2.3% decline the previous month. Economists had expected orders for autos, appliances and other goods to rise 1% in the month. "The latest economic indicators remain weak, but are improving," said Swiss Re chief economist Kurt Karl. "Consumer and business confidence is rising. Housing, vehicle sales and consumer spending continue to provide modest, positive stimulus. Though growth is soft now, it should accelerate in the second half of the year and into 2004." Most sectors retreated Wednesday, with chips, drug and oil stocks all lower. Banking stocks also declined. Goldman Sachs ( GS) slipped 2%, or $1.82, at $84.78 despite reporting second-quarter earnings that easily beat Wall Street estimates, reflecting strong operating results from the bank's fixed income, currency and commodities desks. Freddie Mac ( FRE), meanwhile, disclosed an earnings restatement that will add $4.5 billion to its bottom line over the last three years. Freddie Mac shares were up 80 cents, or 1.6%, at $50.83.