Oh, how the mighty have fallen -- and not just the

Dow Jones Industrial Average

, which today closed at its lowest level since Oct. 1, 1998. The

Federal Reserve

, which left rates unchanged, also fell to multiyear lows in terms of its ability to influence the financial markets.

The Dow's daylong resistance to falling below its July 24 closing low of 7702.34 proved futile during a final-hour swoon that left the index down 2.4% to 7683.13. The Dow's next major technical support is its July 24 intraday low of 7532.66.

The

Nasdaq Composite

exhibited relative strength throughout the session but finished down 0.3% to 1181.90, dispelling hopes yesterday's six-year low would mark its nadir.

The

S&P 500

lost 1.7% to 819.17, and is now the only major average above its July 23 closing low of 797.70, as well as its July 24 intraday low of 775.96. However, the Dow's technical breakdown today suggests it's increasingly likely the S&P

will soon follow suit.

Rather than being a focus of trading, the Federal Open Market Committee's meeting today merely provided a brief reprieve to the prevailing downward trend.

As was widely expected, the Fed left the fed funds rate unchanged at 1.75%. In its

statement, the central bank reiterated (verbatim from its Aug. 13 statement), a belief that "the current accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, should be sufficient to foster an improving business climate."

However, the Fed also conceded "considerable uncertainty persists about the extent and timing of the expected pickup in production and employment owing in part to the emergence of heightened geopolitical risks." That was the first time the FOMC has mentioned concern about employment growth this year, and its omission of the worries about "weakness in financial markets" it cited in August was notable.

The violence of the selling has abated, but major averages are below those levels and there are concerns about major financial institutions such as

J.P. Morgan

(JPM) - Get Report

and

Fannie Mae

(FNM)

.

Given no rate cut was expected, perhaps the most newsworthy aspect of the FOMC announcement was that two members, Fed governor Edward Gramlich and Dallas Fed president Robert D. McTeer, dissented from the majority and recommended an ease.

"It seems from the tone of this

statement with two dissents, they're fairly clearly moving toward a cut in November," observed David Gitlitz, president and chief economist of DG Capital Advisors, who noted speculation the Fed may ease prior to its next scheduled policy meeting.

Two Schools in Session

Gitlitz represented one of two main themes about the Fed's decision today, namely: If they're going to ease, what's the use of waiting?

"People are going to be delaying borrowing decisions, waiting for the Fed to cut rates. That means the Fed will be effectively tightening policy while in the period waiting to ease," he said. "Particularly in a deflationary environment, it's the wrong time to be doing anything that might be restricting the availability of liquidity,

but that's what they're in danger of doing."

Such concerns were cited by some observers as to why the stock market sold off shortly after the Fed's 2:15 p.m. announcement.

On the other hand, Gitlitz expressed doubts about how much lasting impact a rate cut today would have, which brings us to the second school of thought: With just 175 basis points of easing left, the Fed is wise to be especially prudent in when it uses its remaining 'bullets.'

"They're realists

and understand there's nothing they can do magically -- 25 basis points isn't going to fix things," said Anthony Karydakis, senior financial markets economist at Banc One Capital Markets. "Once they get back into easing it's an open-ended game -- the resumption of a process

vs. a one-shot deal. Ideally they would like to get things sorted out in a way that wouldn't require Fed intervention."

Karydakis observed GDP growth is likely to approach 4% in the third quarter, thanks mainly to consumer spending, and exceed 3% for the second half of the year.

"It's not a recession; there's no overwhelming weakness," he said. "That's why they're hesitant

to ease and, unless the evidence is overwhelming, will want to wait to see if economic reports will give them a reason for which they shouldn't ease."

In today's economic news, the Conference Board's Consumer Confidence Index fell for a third-consecutive month. But September's reading of 93.3 was above the consensus expectation.

Ignoring the Man Behind the Curtain

Stocks fell early in the day amid heightened prospects for war with Iraq, disappointing earnings from

Lehman Brothers

(LEH)

, which ended down 0.5% and well off its early lows, and warnings by

Weyerhaeuser

(WY) - Get Report

, which lost 12%, and

Maytag

(MYG)

, down 5%.

Also weighing on major averages was

Electronic Data Systems

(EDS)

, which closed down 29% to 11.68. Merrill Lynch said a

bad bet on derivatives could eliminate EDS' free-cash flow for 2002, and Sanford Bernstein speculated the

Securities and Exchange Commission

might investigate the firm's accounting.

Still, stocks began rallying at about 12 p.m. EDT and up until the Fed's announcement. Shares tumbled immediately thereafter, then rallied again, before retreating again in the final hour. The bond market went through some similar machinations, with Treasuries essentially ending at the same levels as just before the Fed announcement. The price of the benchmark 10-year note rose 16/32 to 106 3/32, its yield falling to 3.64%.

The pattern of financial markets suggested factors beyond the Fed were holding sway.

"I'd never want to say a Fed meeting was a nonevent but the meeting itself was not as big a factor as others have been," said Bob Basel, director of listed trading at Salmon Smith Barney, who noted its outcome was widely expected. "If this was the mid-1990s, no news from the Fed would be good news, but now, unless it's a real good piece of news, it's taken more bad than good."

As for the major catalysts for today's selloff, Basel cited a now familiar litany of issues: "It seemed inevitable we were going to test the

July lows, there's continued unrest in the world, and no big pieces of economic data with positive implications," he said. "Right now there's no compelling reason to buy

equities other than selected stocks being cheap on a valuation basis, and those are few and far between."

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.