Fed's Nifty Fifty Fuels Wall Street

Others sounded a more hopeful note.

"It was quite surprising to the Street, even though there was a small group that had hoped for a 50 basis-point cut," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "It shows that the Fed is ahead of the curve. It helps to restore confidence and is likely to encourage business investment by lowering borrowing costs. This may even be recognized as the initiation point that housing finds a bottom."

Not everyone was jubilant, however.

"I'm a little disappointed," said Jim Bianco, president of Bianco Research. "I'm in the camp of creating another bubble is why we have the last one -- if they are going to go down that road I'm a little disappointed."

The Fed's shift to an easing posture comes amid considerable debate over how the central bank would handle a credit crunch that has hit financial stocks hard.

After months of maintaining that inflation was the main risk to the economy's health, the Fed said last month that "downside risks to growth have increased appreciably." This week, the Bank of England bailed out struggling mortgage lender Northern Rock after the bank failed to find funding in the wholesale lending markets.

Accordingly, the debate among market participants has recently shifted from whether the Fed would reduce rates to how deep the cut might be. Some argued in favor of a 50-basis-point cut, contending the economy's health is threatened by tightening credit conditions and losses tied to the housing and mortgage sectors.