Personal Finance QuickTake: Big Cut Tuesday

Big cut Tuesday? The pressure is mounting. How aggressive? Caught between a rock and a hard place.

They have already cut rates this week on Sunday but are expected to cut cut rates Tuesday, perhaps even up to a point.

From the report:

With the quick collapse of the investment bank Bear Stearns, fears are mounting about whether other financial companies may fall. Many believe the country has already sunk into recession and all the problems — if not contained — will deepen and prolong the pain.

"The Fed is on high alert — something you don't see but once every quarter century; maybe, in this case, since the Great Depression. This is a very unusual period," said Mark Zandi, chief economist at Moody's Economy.com.

That's because the Fed is having to fight multiple battles at the same time: a housing collapse, a severe credit crunch and Wall Street turmoil that threatens the stability of the entire U.S. financial system. All those problems feed on each other, creating a vicious cycle that can be hard for the Fed and other Washington policymakers to break. The weight of those troubles is like a millstone on the ailing economy.

"Now the issue is fighting the deeper recession," said Brian Bethune, economist at Global Insight. "It has kind of moved to another level. The fires are spreading," he said.

To limit the damage, Bernanke and his colleagues may ratchet down a key interest rate, now at 3 percent, by as much as a full percentage point, to 2 percent, which would put that rate at the lowest it has been since late 2004. Because that rate affects a wide range of rates charged to millions of consumer and businesses, it is the Fed's most potent tool for reviving economic activity.

I don't know if it is the dawning of a depression, but it seems that the Government, nor many others have a feel how deep the rabbit hole goes.

The real concern is to over-correct or to blow-out inflation. But if this is the beginning of the issue and not the beginning of the end, we are using a bunch of our ammunition right away. The question is that would be be running this fast if it wasn't an election year?