What is the right number for interest rates? 4%? 3%? 2%? No one knows for sure, and that's the problem. Investors are becoming like Pavlov's dogs, frothing at the mouth at the mere thought of an interest rate cut. Once the Fed accedes to their wishes, they are satisfied for a while but wind up wanting more and more cuts.

As today's market action shows, these people are never going to be satisfied. The Federal Reserve lowered short-term interest rates by one-quarter point to 4.25%, the third cut since September. It reduced the discount rate -- the rate the Fed charges banks to borrow money -- by the same amount to 4.75%. "A large minority of economists had projected a half-point cut in the federal funds rate," according to the Wall Street Journal.

The Federal Open Market Committee also remains as worried as ever about the economy.

"Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation," according to the statement from the FOMC. "The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

There are days when the U.S. Federal Reserve probably feels like it's part of a well-researched, coordinated public policy effort to both keep the U.S. economy growing at an acceptable rate with low inflation, and serve as an engine for global growth. Then there are days like today, when the Fed undoubtedly feels like it's out there on its own, like that well-known bald eagle -- a solitary guardian amid ever-present risks and dangers.

The Fed meets December 11 to decide whether to continue to ease monetary policy. The consensus among economists and Wall Street analysts is that the Fed will lower key short-term interest rates by a quarter-percentage point to 4.5%, with some analysts predicting a half-percentage point cut by the Fed.

In an effort to stimulate domestic demand amid a U.S. economy slowed by subprime mortgage defaults, the Fed has twice lowered key interest rates this year, cutting the Fed funds rate -- the rate banks charge each other -- to 4.50%, and the discount rate -- the rate the Fed charges banks for short-term loans -- to 5.00%.

Wall Street's initial evaluation of The U.S. Federal Reserve's decision Tuesday to lower both the fed funds rate and the discount rate by 50 basis points was that it represented a clear statement by the central bank that it's aware of impact of the subprime mortgage / housing sector slowdown's impact on the U.S. economy.

Wall Street cheered the Fed's decision, with the Dow jumping almost 200 points in the initial minutes after the announcement; the Dow closed at 13,739, up about 335 points; the Nasdaq closesd at 2,651, up 70 points .

The Fed cut the fed funds rate to 4.75% and the discount rate to 5.25%: most economists had expected a 25-basis-point cut in the fed funds rate, not a 50-basis-point cut.

Further, the Fed's decision was unanimous - another action suggesting that the Fed is aware of the seriousness of the economic slowdown in the U.S. In its statement, the Fed said, "Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally." Many economists estimate that the housing slump will reduce U.S. GDP growth by 1 percentage point, and possibly by more. These analysts also generally agree that a substantial, sustained housing slump is capable of driving the U.S. economy into a recession.

Even the Fed is getting nervous about the market. This morning, it cut the discount rate from 6.25% to 5.75%.

The agency said its move was to promote the restoration of orderly conditions in financial markets.

The Fed's website carried a statement explaining the move: "These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially."

The board's governors clearly believe now that tight credit conditions are killing the markets and threaten the economy.

The move is giving the market significant relief. S&P futures, which were down sharply early in the morning are now up 22 points and the market looks to open strongly in the green.

Douglas A. McIntyre is a partner at 24/7 Wall St.