With the stock market enduring nothing but lousy days, and the Nasdaq Composite Index, in particular, at two-year lows, some are calling for the Federal Reserve to lower interest rates now, rather than waiting until the March 20 FOMC meeting.

Could the Fed oblige a market all but begging for a rate cut? Should it?

The short answer is: It won't and it can't.

The Fed won't assuage investors with a rate cut based on the recent market activity for a number of reasons. For one, there's a credible argument to be made that it did this already -- on Jan. 3, when it cut the

fed funds rate to 6% from 6.5%. At the time, the Fed was responding to growing economic weakness, especially in business investment, but the surprise nature of the 50

basis-point cut taken that day was done in part to soothe the market's fears.

It worked for a time. The market was strong through most of January, thanks to that action and in expectation of further cuts (which the Fed provided on Jan. 31, when it cut the funds rate by an additional 50 basis points).

Since the last week of January, stocks have fallen into a hole. But Fed action based on recent market performance would go against its mission of taking a long-term approach to helping the economy. It would also contradict recent statements from Fed officials (including

Chairman Alan Greenspan), which acknowledge tentative improvement in the economy.

"If the Fed reacts to current market malaise, they have put themselves behind the eight ball in a big, fat way," says Scott Bleier, chief investment strategist at

Prime Charter

. "It's not the Fed's job to manage the market; it's to manage the economy over an intermediate- to long-term time period."

Of course, some would say the Fed, based on its actions in the last few years, has already damaged its credibility and looks like the rescuer of those with bad stock positions. It has made some wonder why, if it lowered rates to protect the stock market then, it doesn't do it now.

Well, the issue isn't that simple -- the Fed clearly has to factor stock prices into its deliberations when it discusses interest rates, because equity participants use the information to help predict future economic activity.

Perhaps more than ever during his 14-year run as chairman, it's clear now that Greenspan is looking closely at stocks. During his monetary

report to

Congress

(formerly known as

Humphrey-Hawkins), he cited the growth of the investing base in the country, which, he said, makes the stock market a more important indicator of spending patterns.

Unfortunately, this focus helps perpetuate the circular logic that has the Fed and stocks pushing and pulling each other (as in the Fed starts reacting to stocks, and stocks react to the Fed, the Fed reacts, ad infinitum.)

That may suggest why the Fed was overly cautious at the end of last year before lowering interest rates, lest it be seen as coming to the aid of the stock market, instead of reacting to economic data. It may have outsmarted itself by not lowering interest rates in December, when it became apparent that the economy had slowed dramatically.

"In December, that fear of the Fed-ease rally probably inhibited them too much from easing," says Marc Wanshel, financial economist at

J.P. Morgan Chase

. "But the rapidity of the decline may have been a factor in the Jan. 3 easing, but probably less so than the anecdotal evidence about how weak the economy was."

Currently, the Fed is facing continued malaise in the equity market and an uncertain economic picture.

The recent stock selloff is partly an acknowledgement that corporate fundamentals have deteriorated further. It's also reflective of an understanding that Greenspan, in discussing economic improvements, is trying to dissuade the market from thinking another intermeeting cut is on the way. Lastly, the market is also reacting to the recent

Consumer Price Index

, which shows inflation building, and could tie the Fed's hands down the road.

That's not to say an intermeeting cut is completely out of the picture. It could happen, and stocks might be a factor -- if financial stocks continue to decline, the Fed might take notice, because financial stocks are suggestive of the strength of the interest-rate and credit environment.

But the Fed can't improve corporate earnings, can't increase consumer demand and can't prod companies to spend money. All it can do is provide the environment to allow those things to happen. So it will likely cut rates -- just not necessarily when the market thinks it should.