Reuters reports that like last week, the global markets are cratering. The question is whether the Fed will come in with the same emergency 75-basis-point rate cut it used last Tuesday when U.S. markets opened to damp the downturn. Here's the damage:

• The pan-European FTSEurofirst 300 was down 1.3%, taking January's losses close to 13%
• Nikkei dropping nearly 4%

In addition to the $150 billion stimulus package, the Fed is already expected to cut interest rates again this week; interest rate futures show the market is betting on another 25 or 50 basis points in cuts, possibly taking rates as low as 3.0%.

But with Dow futures down 57 at 7:15 a.m., it looks this morning like it's not enough -- the Bernanke Call -- investor's expectation that his rate cuts mark a ceiling below which the market will tumble -- appears alive and well. I wonder whether Bernanke will try another emergency rate cut this morning.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

The Federal Open Market Committee (FOMC) reduced the target Federal Funds Rate and the Discount Rate by 0.25%. The quarter-point cut in the Fed Funds Rate was predicted, although many (myself included) expected the Fed to be much more aggressive in cutting the discount rate, reducing or possibly eliminating the discount window penalty.

The FOMC deleted the reference to a balance between inflation and economic deterioration, although it mentioned that inflationary pressures were still a concern. However, the language describing the recent economic turmoil was relatively restrained.

The Fed gave no assurance that it considers the economic deterioration more serious than inflation, stating that it "will act as needed to foster price stability and sustainable economic growth." It also gave no indications of its course for the future, saying "Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time."

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."

Investors were disappointed this afternoon after the Federal Reserve cut interest rates 25 basis points. As of now, the Dow is down 212 since the cut was announced.

I think the drop means that investors were expecting a 50-basis-point cut. Furthermore, the statement reflecting ongoing concerns about inflation could mean that the Fed's cutting could be over for now.

But that's what the Fed implied the last time it cut. If the Dow falls another 500 points in the next few days, Bernanke will ride to the rescue -- announcing that it was "flexible." Unfortunately, with rates at 4.25%, there's not that much further to go before it hits bottom.

The Fed is scheduled to announce the results of its latest rate-setting meeting at 2:15 this afternoon. Most analysts expect it to cut rates -- at least 25 basis points (100 basis points = 1%). I'm just not sure I understand why the Fed keeps cutting.

There are two reasons that come to mind as possibilities. First, the stock market seems to love hints that the Fed will cut interest rates. Since the summer, whenever the stock market fell a few hundred points, Ben Bernanke or another Fed governor would give a speech using key words such as "flexibility" and the stock market would rally. That's what happened a few weeks ago when the Dow dropped below 13,000 and it magically rallied 750 points.

A second reason is that the Fed thinks that a recession is in the forecast due to a freeze up in the credit markets, and that it's better off cutting rates to ease the pain. If a doctor had only one kind of medicine -- say, aspirin -- then the doctor would prescribe it to all patients, because it was better to give the patient something than nothing at all. This approach would work if the patient had a headache -- but it would be less effective if the patient had cancer.

The Federal Reserve Open Market Committee (FOMC) meets tomorrow to decide what to do with interest rates. Based upon speeches by Chairman Ben Bernanke and other Fed officials, it is widely expected that the target Fed Funds Rate will be reduced by 0.25%, with an outside possibility that it will be reduced by 0.50%.

However, the most important outcome from the meeting is the perception that the Federal Reserve is going to stay ahead of the curve to prevent the economy from slipping into a recession. This is the biggest concern of the market. After the last meeting, the statement implying that the Fed was done lowering rates sent the market into a tailspin, despite a 0.25% reduction in the Federal Funds Rate.

The Fed will probably not make the same mistake this time. Here are a few things to look for in the FOMC statement Tuesday:

This post was part of AOL Money & Finance's Best & Worst of 2007 feature. The voting has now closed and readers have chosen the weak dollar and rising oil and gold prices as the money story of the year. Be sure to let us know in the comments if you are pleased with this result.

As we approach the end of 2007, we now have a really tough question to answer. What is the Money Story of 2007? What are the candidates?

The Boom and Bust in Private Equity Buyouts

As we entered 2007, no one could imagine the activity with private equity firms around the world. Private equity firms were supposed to be the new Masters of the Universe, ushering in a new Gilded Age not seen since 1920s. We saw this with the initial public offering of the Blackstone Group, the premiere private equity group. This was followed by a series of public and semi-public offerings by other organizations, such as Apollo Group.

However, the new Roaring '20s was relatively short-lived with the credit crunch. This caused most merger activity, including corporate buyouts, to come to grinding halt. Blackstone Group (NYSE: BX) now trades substantially below its high price. Who could guess that private equity would experience a boom and bust all in the same year? However, before you dismiss private equity as an element of the past, remember that most of these firms still have substantial cash available ready to invest when conditions are ripe.

It's beginning to look like the Federal Reserve has lost its independence. However, rather than taking dictation from the White House, it appears to be under Wall Street's control.

Bloomberg News reports that the Fed is likely to cut interest rates when it meets this week. Traders in federal funds futures initially gave a 75% chance of a rate cut on October 31, but scaled back those odds to 50% after the October 5 revision of August payroll numbers to show a gain instead of a decline.

The reason the Fed stated for its September 18 50-basis-point cut made little sense to me -- some words about market turbulence. The market turbulence is real enough -- related to the subprime mortgage mess -- about which I posted here. But the Fed's job is to keep inflation in check -- and with oil prices hitting a record $93 a barrel and labor rates rising at a 4.9% annual rate -- it is surely failing at that job. (Save me the blather about core inflation -- and excluding energy and food prices.)

However, Bernanke is responding dutifully to his Wall Street masters -- using the interest rate cuts to ladle a heaping dollop of corporate welfare onto the gilt-edged plates of billionaire bankers and hedge fund grandees.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Economists and CEOs have vastly different views on the economy.

A Wall Street Journal (registration required) poll of economists surveyed between Oct. 5 and Oct. 9 showed that on average they put the chance of a recession at 34%, down from 37% in September.

Is it a big deal that economists are 3% more optimistic than they used to be? Well, that depends. Though the dismal scientists expect the federal funds rate to be reduced one more time this year by one-quarter percentage point, they are pretty downbeat on the housing market.

Many, though, apparently see the glass as half full.

"Some of the uncertainties have faded, partly due to the fact that the Fed moved more aggressively," Lou Crandall, chief economist at Wrightson ICAP, told the Journal. "The Fed's willingness to pull out all the stops played a role in bolstering the economy."


In fact, 44.3% of the 61 top CEOs expect economic conditions in their industries to get worse, up from 24.4% in February. Almost 60% of those surveyed expect the U.S. economy to get worse, up from 24.4% a year earlier.

So who are you going to believe?

The Minutes of the September 18 Federal Open Market Committee (FOMC) meeting were released today at 2 PM ET. Because of the 50 basis point reduction in the Federal Funds rate that many on Wall Street (myself included) did not expect at the time, there was more anxiety than usual surrounding the release of this report.

Yesterday, the market ended the day for most indexes on the downside, although only mildly so and on low volume because of the Monday holiday. The markets were also off slightly, prior to the release of the minutes. A rally began shortly after the release of the report. The big question is why?

On one side of the equation, the Fed gave no indication that this was only the first in a series of rate cuts. It actually appeared that the cut was more a form of insurance to "forestall" the potential effects of the housing crisis on the broader economy. This indicates that there may not be any additional rate cuts in the near future.

Today, the Federal Open Markets Committee (FOMC) decided to keep its target interest rate unchanged at 5.25%, as widely expected. The controversy was more over the supporting language of the decision.

The Fed emphasized that its predominant concern was inflation. Some on Wall Street hoped that the Fed might move to a more balanced position by also mentioning concern with the downside risks to the economy. When these hopes were dashed after the statement's release, the stock market dropped briefly before recovering.

The FOMC did acknowledge the recent volatility, tightened credit conditions, and the declining housing situation. It appears to be watching the situation carefully but sees no spread to the general economy. If the Fed had elaborated about any of these topics, it would have created the impression that the situation was deteriorating more than previously thought, and this would have been a negative for the market.