Traders Scoff at Cut

On inflation, the statement said readings on core inflation have improved, but the familiar mantra was in place. The Fed noted that "elevated energy and commodity prices, among other factors, may put upward pressure on inflation."

But the committee didn't include the usual single sentence summation that clues the market into its thinking. The Oct. 31 statement read, "The committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth." Investors expected to see this turn into a balance that leaned toward the risks to slower growth, as many economists expect GDP growth to stall in the fourth quarter as the housing market continues to slide and business and consumer spending continue to slow.

"The Fed is a little behind the curve," says Thomas Higgins, chief economist at Payden & Rygel.

Traders say that the only thing that will help the markets is true credit markets relief, which some analysts argue the Fed can't offer with cuts in the fed funds rate. Analysts do note that lower short-term rates help steepen the yield curve, which does help financial institutions make money by collecting a wider spread from borrowing at cheap rates and lending longer term at higher rates.

But there's no question that recent victims of subprime- and credit-related troubles, including Washington Mutual(WM Quote), which on Monday slashed its dividend and said it would look to raise $2.5 billion in a preferred stock sale to shore up its balance sheet, and Bank of America(BAC Quote), which also on Monday shuttered a $12 billion money market fund, need to see more light at the end of the subprime tunnel.