The Economist released a story yesterday regarding the Federal Reserve that carries the headline: Do I Look Like A Pushover? Meaning--Ben Bernanke and the rest of the Fed acts according to what investors desire, and not necessarily the needs of the economy.
I continually wonder if investor expectations actually plays a part in the Fed's decisions. I hope they don't. The Fed has a responsibility to protect the economy as a whole, not just calming storms in the financial markets. On the other hand, is Bernanke a pushover? I don't think so.
However, as we're finding today, a short term rate cut won't always stimulate the market, especially with the downturn in consumer spending.