This is not what the markets wanted. The Fed cut 25 basis points on both the fed funds rate and the discount rate. I said markets would sell off if there was not either 1) aggressive rate cuts (50 basis points), and/or 2) aggressive statements that the Fed would do all it could to forestall the crisis in the credit markets.

There was neither. The Fed talked about economic growth slowing, but there was no rhetorical conviction behind their statements. They did not even say that the balance of risk had shifted toward a slowing economy.

Not surprisingly, the markets have sold off on this; the Dow, which was up about 35 points prior to the statement, is now down 144.

Still, many are arguing that while bonds seem to have been pricing in an increasing probability of a recession since August, the stock market has not behaved that way, despite the nosedive in financial stocks.

They note that the S&P 500 prior to the Fed statement was only 50 points (3 percent) from historic its October historic high.

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