Kass: The Fed Gets It, and a Cut Is Coming

Others have seen the light. To his credit and despite his inherently bullish leanings, Jim "El Capitan" Cramer was early on all this and sounded an alarm heard around the YouTube world when he exhorted the Fed on CNBC's Stop Trading to take action. Even the ever-optimistic Larry Kudlow has come to the same conclusion that a quick and aggressive monetary response is necessary.

But there is good news, and it's two-fold.

First, fear, the most important reagent to a tradable market bottom, has assumed a central role on the market's stage after a series of down 200-point days.

Second, and more important, my contacts suggest that the Federal Reserve is now coming to its senses and has begun to recognize the weakness in the real economy -- the recent weakness in the equity market has apparently also caught their attention.

We already have seen the beginning of a transformation of view in the Fed's Aug. 17 statement that accompanied the recent discount rate drop; it was in marked contrast to yesterday's Fed minutes disclosure that seemingly led to an acceleration in stock market declines late Tuesday afternoon.

So, despite the broadly negative reaction to the rearview Fed minutes yesterday, the Fed's head appears to be (reluctantly) coming out of the sand. It has apparently begun to view the economy with greater clarity than in the past two months, and I believe that a cut in the fed funds rate is imminent, and could come even before the September meeting.