Fed's Nifty Fifty Fuels Wall Street

Others suggested losses so far have been borne mostly by financial speculators and that by easing now, the Fed risks creating other problems in the economy. Skeptics of an extended easing campaign may be pointing to Tuesday's stronger-than-expected earnings from Lehman (LEH Quote), which along with Bear Stearns (BSC Quote) has been seen as one of the Wall Street firms hit hardest by problems in the debt markets.

The news comes as Fed Chief Ben Bernanke confronts his first major policy decision, while his predecessor Alan Greenspan is out hawking a book about his reflections on nearly two decades at the helm of the central bank.

Bernanke's Fed has been loath to cut rates, because it seeks to remain vigilant against the threat of inflation. The inflation threat looms especially large because the dollar has been in decline against other major currencies. A declining dollar reduces consumers' purchasing power and feeds inflation by making imports more dear.

The Fed also cut its rate for emergency borrowing at the so-called discount window Tuesday by 50 basis points to 5.75%. The move comes just a month after the central bank surprised Wall Street by cutting half a point from the discount rate, as credit markets threatened to seize up.

Last month's discount rate cut came after Bear said two of its hedge funds had lost essentially all their value, and Countrywide (CFC Quote) had to get an infusion from Bank of America (BAC Quote) to help fend off a severe liquidity squeeze.

Since then investors have struggled to make sense of a mixed picture. On Monday, E*Trade (ETFC Quote) became the latest financial company to warn of a hefty hit from mortgages gone bad, but Tuesday morning Best Buy (BBY Quote) posted solid numbers that suggest the consumer isn't yet in dire shape.

The fed funds rate had been at 5.25% since June 2006, when the central bank concluded a string of 17 consecutive quarter-point rate hikes.