CNBC's Domm: Today's Agenda in the Markets

The Fed rode to the rescue this morning, throwing a life line to financial institutions with a half point cut in its discount rate. It also ignited a new debate about whether there's a cut to the target Fed funds rate at its September meeting.

Stocks soared from the start with financials the biggest beneficiary. Stock futures reversed immediately when the Fed made its announcement at 815 am New York time, and European markets turned sharply higher.

The Fed's discount rate is the rate it uses for short term lending to financial institutions. It trimmed the rate to 5.75%. The Fed did not cut its main rate, the Fed funds target which is at 5.25%. In a statement, the Fed said it judges that "the downside risks to growth have increased appreciably."

"This is a targeted effort by the Fed. It does not cut the overall target rate. What it does is inject liquidity. This allows a bank to go with a pool of sub prime mortgages and get short-term overnight financing," says CNBC's senior economic correspondent Steve Liesman. "this is intermediate step. its something the Fed is throwing out there to see if it works."

Scotsman Capital Managing Director Vince Farrell said the Fed is relaxing all kind of rules for banks. Regarding "the discount rate cut- banks can bring virtually any security to the discount window as collateral - like mortgage backed securities - (usually only Treasury for Fed Funds borrowing.)," he wrote in a note to us today. "They also extended the term from overnight to 30 days and terms are renewable. So the Fed is allowing the banks to liquify some of their "frozen" assets. This is a big deal. Some will wonder why not cut a full point to match the Fed Funds rate, but as I have said before, I think the Fed will have a very high pain threshold and will not want to be seen as bailing out the speculators."

Mad Money Moment

CNBC's Jim Cramer was not shy about telling the world the Fed should cut rates. He's been calling for it loud and clear and today he says the Fed made the right move at the right moment.

"We will be up the most we've ever been in history today," said Cramer on "Squawk on the Street" this morning. When he made that comment this morning, the Dow was up more than 300 points.

Cramer said on a point basis the Dow could score record gains as shorts rush to cover. "If they hadn't done this, we probably would have been down 1,000 points. I think the odds for a crash today and Monday were probably the highest they've been since 1987," he told co-anchors Erin Burnett and Mark Haines.

"It's a brilliant move by the Fed. Two weeks ago, when I had my talk with you, they were doing the exact opposite. They obviously heard us. They acted. This is the beginning of the run to 14,500," Cramer said to Burnett. (Remember the dramatic plea by Cramer for a rate cut on Burnett's Street Signs program)

As we head into today's options expiration, many traders were set up short. "This is the one day they could do this action and completely catch everyone off guard," Cramer said.

A Shout Out to Bernanke

"I think they nailed it," Cramer said. "I hated them two weeks ago. Now I love them."

New View from the Fed

Former Federal Reserve Governor Lyle Gramley, with Stanford Research Group, said the Fed signaled a change in bias.

"The more significant thing the Fed did today was the other statement that it put out noting that the financial conditions have deteriorated, that these things have the potential to restrain economic growth going forward and saying that the Federal Open Market Committee judges that downside risk to growth has increased appreciably. That to me is the functional equivalent of withdrawing the bias toward tightening that they've still had in their August 7th statement and replacing it with a bias towards ease. This is very helpful," Gramley said on CNBC today.

The move by the Fed also led to immediate speculation that the odds of a Fed Funds rate cut is more likely in September.

"The Federal Reserve is likely to lower the fed funds rate by at least a quarter-point by the September 18th FOMC meeting," Miller Tabak's Tony Crescenzi wrote in a note this morning. "The cut in the discount rate will impart almost no direct benefit on the U.S. economy given that the discount window is rarely used."

"In fact, only $187 million was borrowed on average each day for the past year. Moreover, most debt obligations are tied to the fed funds rate, which is why it is imperative that the Fed validate this largely valid but important action with a cut in the fed funds rate," he said.

He did agree with Cramer in that the timing was everything.

"The timing of the Fed's surprise discount rate cut was exceptional, occurring at a time when speculators would arguably have significant difficulties reversing their short positions in numerous asset classes," according to Crescenzi, adding it burns speculators.

Farrell though is not betting on a cut in the Fed funds rate.

"A nuance in the discount rate cut allows the borrower to renew at the end of 30 days," he tells us. "This allows the borrowing bank a lot of help. Banks would rather avoid the 50 basis point premium at the discount window versus the Fed Funds rate, but it allows some wiggle room. The fact that is was not a full 100 basis point cut leads me to believe that the Fed does not want to cut at the September meeting but will keep the other 50 basis points on the discount rate as their next option. It does, however, move them one step closer to a September cut, but I'll stay with my guess that it will not happen."