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Fed Plots Measured Course

Following steep overnight losses in international bourses -- including the Nikkei's worst one-day decline since the Sept. 11, 2001, terror attacks -- U.S. equity futures were pointing to a sharply lower open early Friday -- even scuttlebutt about a potential "crash." Futures quickly reversed following the Fed's discount rate cut at around 8:15 a.m. EDT, and major averages jumped in early trading. But after trading as high as 13,167.68 earlier, the Dow Jones Industrial Average was recently up 130 points to 12,976.

The S&P 500 and Nasdaq Composite were following similar patterns as traders continued to speculate about whether the central bank did too much, not enough or got it just right.

Rate Debate Continues

The central bank wants to relieve the seizure in credit markets without putting the economy in jeopardy. That goal should be lauded.

If this discount window action does the trick, psychologically and otherwise, the job could be done and odds of a near-term fed funds rate cut declined early Friday.

But if Friday's action doesn't ameliorate the pressure on normal financial operations, the risks to the economy on both the inflation and growth side increase.

On the growth side, the risks are obvious: A standstill in normal financing procedures in the economy could lead to higher unemployment and a slower economy. If the Fed believes this is true, they'll want to get ahead of the problem and get the fed fund rate cuts over with. Expect 50 to 75 basis points of cuts by year-end if they go in this direction.

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