Updated from 3:52 p.m. EST

As the Fed delivered its 12th rate hike in a row on Tuesday, quadrupling the fed funds rate in the process, the question has become 'what does it have to show for it?'

"There's very little evidence so far of the impact it's had on the economy," says Doug Porter, deputy chief economist at BMO Nesbitt Burns.

The Fed's rate hike had little impact on stocks Tuesday. But on the heels of several up days, the widely expected quarter-point hike -- and a promise to deliver more -- provoked a typical sell-the-news reaction.

After briefly spiking higher after the Fed's 2:15 p.m. EST decision, major stock proxies returned underwater and stayed there into the close. The

Dow Jones Industrial Average

finished down 33.30 points, or 0.32%, at 10,406.77.

The blue chip average was weighed down by a 3.5% drop in

Intel

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, which gave back all of its gains of the past two sessions.

GM

(GM) - Get Report

also came under pressure after posting a sharp drop in October vehicle sales.

The

S&P 500

finished down 4.25 points, or 0.35%, at 1202.76. The

Nasdaq Composite

lost 6.25 points, or 0.29%, to 2114.05, weighted down by a profit-warning from computer-maker

Dell

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, whose shares tumbled 8%.

The Fed's Dirty Dozen

In the statement accompanying Tuesday's quarter-point hike, the Fed stuck to its script by again described monetary policy as being "accommodative" to economic growth. Risks to growth and inflation remain balanced under the current "measured" policy, laying the groundwork for more hikes to come, the statement stated.

The Fed also repeated its September forecast that hurricane-related disruptions to economic activity will prove temporary.

This has to frustrate those, such as Bill Gross, manager of bond powerhouse Pimco, expecting that the Fed would start signaling the end of the current rate-tightening cycle. Tuesday's stay-the-course turn by the Fed suggests central bankers are looking at something other than headline growth and core inflation. But what?

A likely candidate is the housing sector. For the past several years, ever-rising home equities have been a powerful motor of consumption and, even though home price appreciation seems to have cooled somewhat, it is still likely helping consumers weather energy costs.

According to Paul McCulley, managing director at Pimco, the recent rise in long-term yields is helping deflate the housing bubble. But, he notes, that's not thanks to the Fed raising rates. Indeed, the spike in yields has been caused by concerns about inflation that are based on the reaction of energy prices to the hurricanes. If anything, the Fed's recent tough talk on prices has moderated those fears and, paradoxically, kept yields from rising more.

"It is time for the Fed to quit trying to force up long-term rates with anti-inflation hikes in short rates, which the market believes will indeed prove prophylactic against inflation, and opt instead for steady short rates, which would let rising inflation expectations lift long-term rates and temper speculative fervor in property markets," McCulley wrote in Pimco's latest investment outlook newsletter.

According to BMO's Porter, however, the Fed is stuck because even pausing its interest rate hikes would lead the market to fear that "the Fed is too concerned about the economy," which would send bond yields sharply lower.

On the other hand, the Fed can't let inflation expectations run too much. That could cause long-term yields to spike and take down the housing market with a bang.

"If the Fed senses that the housing market is overvalued, it behooves the Fed not to tighten so aggressively, which would hurt housing and the economy," says John Lonski, chief economist at Moody's. "Thus far, the steadiness of bond yields provides the Fed the option of continuing to hike rates at a measured pace."

That's still what the market is expecting. According to Miller Tabak, the market sees 100% odds that the Fed hikes rates by a quarter point on Dec. 13, and 80% odds of another quarter-point hike at the Fed's Jan. 31 meeting. This would take the Fed funds rate to 4.5% by the time Fed Chairman Alan Greenspan is replaced by new appointee Ben Bernanke. Fed funds futures are now also pricing a 50% chance that Bernanke's first move will be another quarter-point rate hike on March 28.

It would take long bond yields of at least 5.75% to really slow down the housing market, Moody's Lonski believes. On Tuesday, the benchmark 10-year note dropped 3/32, its yield rising to 4.57%. Treasuries fell after the Institute for Supply Management's October manufacturing index showed the economy weathering quite well the impact of Hurricanes Katrina and Rita.

Even as the Fed delivered a rate hike and long-bond yields rose, the Philadelphia Stock Exchange Housing Sector Index rose 0.6% Tuesday, led by

Pulte Home

(PHM) - Get Report

and

Lennar

(LEN) - Get Report

.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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