The Federal Open Markets Committee (FOMC) made an intra-meeting announcement cutting the Federal Funds Rate Target 75 basis points to 3 ½% and a similar cut in the Discount Rate to 4%. The FOMC justified the move because "broader financial markets have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

In a separate move, the Canadian Central Bank also announced a rate cut as well.

This emergency move was made ahead of a FOMC meeting next week and after global markets around the world tumbled during the Martin Luther King Day holiday when U.S. markets were closed.

I believe that this move was made to re-establish the idea of the Fed as the lender of last result: the Bernanke Put. Initially, the Fed was reluctant to cut rates for several reasons:

• It was viewed as bailing out the stock market, not the economy;
• There were inflationary pressures from rising all prices;
• U.S. exports largely resulting from a falling dollar seem to be cushioning any drop in the economy.

The Federal Reserve, especially its current chairman, has received quite a bit of criticism for its performance during the last several months in dealing with the economic turmoil in the markets. The primary complaint is that the Fed is behind the curve in dealing with the economic slowdown. The other major criticism is that the Fed is sending out conflicting signals, which are causing dangerous confusion in the market.

With regard to the first point regarding Fed actions, it remains to be seen if the Fed is behind the curve. Alan Greenspan once said that the Fed cannot prevent bubbles but can help to cushion the economic fallout. This may be true.

Although there were recessions under Dr. Greenspan's watch, they were in general milder than those under previous Fed chairmen. Dr. Bernanke may be in a similar situation. Only time will tell if he is as effective as Dr. Greenspan was. We must all remember that Wall Street has its own set reasons for desiring easier monetary policy by the Fed which may be linked to its own self-interest.

Some pre-market optimism this morning on hopes of a Fed rate cut, made me stop to think whether such cuts help the market. When Alan Greenspan chaired the Fed, investors became convinced he would always bail them out of a jam. This assumption was dubbed the Greenspan put -- meaning that his interest rate policies would create a floor below which the market would not decline.

But his successor Ben Bernanke is creating the opposite expectation -- through his interest rate policies, investors are witnessing a short-term market pop followed by a medium-term market tumble. After a rocky August, Bernanke's first 50 basis point rate cut propelled the Dow up 979 points. But subsequent 25 basis point rate cuts were followed by enormous Dow drops. For example, last October, the Dow fell 571 points, the Fed cut rates 25 basis points but the Dow kept falling -- 541 points.

Here is a time line that tracks recent dropping equity markets, followed by interest rate cuts:

• September 50 basis point cut. In the first week of September 2007, the Dow drops 244 points after a tumultuous August driven in part by subprime concerns -> September 18, 2007, the Fed cuts the Fed Funds rate by 50 basis points from 5.25% to 4.75% -> Hint of rate cut in second week of September causes the Dow to rise 979 points to 14,093 by October 12th.
• October 25 basis point cut. Between October 12 and October 19, 2007, the Dow drops 571 points to 13,522 due in part to concerns about bank asset write-downs -> October 31, 2007 the Fed cuts the Fed Funds rate by 25 basis points to 4.50% -> But the market is disappointed with the lower than expected cut and the Dow falls an additional 541 points to 12,981 by November 23rd.
• December 25 basis point cut. Between November 23 and December 7, 2007, the Dow rises 645 points to 13,625 due in part to concerns about a rocky 2008 -> December 12, 2007, the Fed cuts the Fed Funds rate by 25 basis points to 4.25% -> But the market is disappointed with lower than expected cut and the Dow falls an additional 718 points to 12,800 by January 4, 2008.