The Federal Reserve, as expected, lowered its target for the key federal funds interest rate by a quarter of a percentage point yesterday in the wake of congressional passage of a bill to slash the federal budget deficit.

The drop from 8 percent to 7.75 percent in the rate financial institutions charge one another for overnight loans, however, did not spill over into either the long-term bond market or stock prices, both of which declined.

Analysts said the way in which the central bank went about signaling that it was seeking a lower federal funds rate indicated that the Fed does not want financial markets thinking it is likely to make another cut in the rate soon.

"The question now is, so what?" said Sam Kahan, chief economist for Fuji Securities in Chicago. "The truth is that unless the banks lower the prime rate, most individuals won't reap any benefit from what the Fed did. Most home equity loans are tied to the prime, and if it doesn't go down, they get no help. There certainly is going to be no change in the rates on credit cards."

The prime lending rate at commercial banks is a reference rate to which most business loans and a growing share of consumer loans are tied. It has remained at 10 percent since last January when it was lowered from 10.5 percent.

If the drop in the federal funds rate encourages declines in other short-term rates, such as those banks pay on certificates of deposit, it could set the stage for a lower prime, analysts said.

Many commercial banks, however, are in financial difficulty and will be reluctant to reduce the prime rate because it would mean lower profits for them. They are likely to be particularly reluctant, analysts said, since business loan demand is weak and a lower rate might not encourage more borrowing.

Furthermore, many banks have tightened their credit standards on loans during the past year and a substantial number of would-be borrowers have been unable to obtain money.

The Fed signaled its intention to target a lower funds rate by adding money to the banking system when the rate, which is set by the banks as they lend to each other rather than by Fed edict, was running at 7.75 percent. The Fed added only $1 billion, which Kahan said indicated the central bank was happy with that rate for now. A more aggressive addition of funds could have been seen as a sign the Fed wanted the rate to fall, perhaps to 7.5 percent, he said.

"The Fed wants to create a sense of stability," Kahan explained.

One reason for the cautious Fed move is that in cutting short-term rates it does not want investors whose investment choices largely determine the course of long-term rates, such as those on government bonds and home mortgages, to fear the Fed is relaxing its efforts to control inflation.

"The future moves by the Fed will depend on the course of the economy and inflation," said Ray Stone of Stone & McCarthy, a financial markets research firm in Princeton, N.J. "My own feeling is that they will have to make several moves {because} I do think we probably are in a recession right now."

The initial reaction of investors yesterday to passage of the budget deal and the Fed follow-up on short-term rates was not particularly positive.

Both steps had been widely anticipated before the weekend and interest rates had already begun to reflect them.

As a result, when the actions occurred as expected, both the stock and bond markets responded by knocking down prices rather than staging a new rally.

Analysts attributed part of the bond market decline to remarks by Treasury Secretary Nicholas F. Brady in a speech at Washington College in Chestertown, Md., that the U.S. economy grew at a 1.5 percent annual rate in the first nine months of the year.

Such a figure implies that the economy expanded at a healthy 2.4 percent clip in the third quarter, official estimates for which will be released this morning by the Commerce Department.

That would be a stronger growth rate than most forecasters have been predicting for the third quarter, and analysts said such a rate would make the Fed reluctant to reduce interest rates again to spur growth.

A Treasury spokesman later said Brady did not have advance knowledge of what Commerce would report today and intended only to say, as he has in the past, that the nation is not in a recession.