Another day of early equity strength followed by extended and extensive late-day losses has me thinking the unthinkable: Might the

Federal Reserve

lower

interest rates at Tuesday's policy meeting?

I know there is "zero probability being assigned to that" possibility, as William Sullivan, senior economist at Morgan Stanley, said. But consider the following: When the Fed began its historic easing cycle with a intermeeting rate cut on Jan. 3, 2001, the

Dow Jones Industrial Average

traded as low as 10,367.19, the

S&P 500

dipped as low as 1274.62, and the

Nasdaq Composite

hit a nadir of 2251.71.

You'll recall, no doubt, that legions of market watchers declared that the Fed had ensured a bottom with its easing on Jan. 3, 2001. Statistics showing how the market had historically fared after various numbers of easings were widely proffered as "proof" such bullishness was justified.

Clearly, such forecasts were ill-fated. Monday, the Dow traded as

high

as 10,023.86 before closing down 2% to 9808.04. The S&P 500 fell 1.9% to 1052.66, and the Comp lost 2.1% to 1578.42. The averages each closed just a hair above respective intraday lows, while the American Stock Exchange Biotech Index cracked presumed support at 400, falling 5.8% to 386.16.

So, logically speaking, if the Fed felt the market required "rescuing" at Dow 10,367 and Nasdaq 2251, isn't it more in need of it today?

The equity market's fall at the beginning of 2001 was "occurring in

the backdrop of a floundering economy," Sullivan countered. "I don't think the Fed is overly concerned

about stocks as long as the economy has forward momentum,

and most data suggest the recession is in the past and we're experiencing the recovery process."

Obviously (I hope), I'm being somewhat facetious to suggest the Fed will ease tomorrow. There are myriad reasons why they will not, including ongoing strength in consumer spending and the housing market (although the S&P Homebuilding Index fell 3.8% today). The Fed "doesn't want to add to a possible housing bubble," said John Lonski, senior economist at Moody's Investors Service, who noted renewed increases in refinancing activity in recent weeks.

Additionally, an index of industrial metals is up 8.8% year to date, including the scrap steel Fed Chairman Alan Greenspan purportedly watches as a harbinger of inflationary pressures. Recent strength in gold (gold futures fell 0.1%, but the Philadelphia Stock Exchange Gold & Silver Index rose 1.6% today) and weakness in the dollar (which gained against the yen but fell vs. the euro today) also would presumably preclude the Fed from easing.

Still, I think it's interesting how the debate has shifted. More than two years after the bursting of the bubble that he still hasn't publicly acknowledged took place, Greenspan is seemingly less concerned with the equity markets than he appeared to be last year.

"The Fed is not oblivious to what's going on

in the stock market, but they're less than convinced the latest slide requires the remedy of another rate cut," said Lonski, who wasn't responsible for Moody's comments about potential downgrades for financial services firms today. "The Fed would only cut rates if they felt the U.S. economy was in need of an emergency dose of liquidity."

The Fed would only respond with a rate cut "if equity prices kept falling -- suppose the stock market plunges by another 5% to 10% rapidly," the economist suggested.

Anyone comforted by the notion the Fed would cut rates after an additional 5% to 10% decline in short order, please raise your hand.

But seriously, both Sullivan and Lonski noted that for all the pain evident in major averages, the majority of stocks have been doing well, although losers bested winning stocks by 2 to 1 in

NYSE

trading today and by 23 to 11 in over-the-counter trading.

"We have the market sagging not because of broadly distributed setbacks by most

stocks but because of deep price declines affecting tech and biotech companies," Lonski said, noting the total market value of all U.S. equities has fallen by "just" 5.3% since March 29.

Yes, but isn't consumer confidence closely tied to the stock market?

It is, but consumer confidence hasn't fallen as dramatically from its heights in the late 1990s as have the major averages. From its peak of 144.7 in May 2000 to its low of 84.9 in November 2001, consumer confidence fell 41% vs. a more than 70% peak-to-trough decline for the Comp. "The lion's share of equity holdings are in upper-income families," Sullivan observed. "Therefore, the damage

to consumer confidence is a lot less than the averages would suggest."

So much for the "democratization" of the stock market, eh?

Furthermore, most household equity wealth is in 401(k) and other retirement accounts, suggesting "the influence of the stock market is overblown to some degree," the economist continued. "People say, 'Yeah, I was worth more in March 2000 but I wasn't looking at that as a

near-term source of spending power.'"

Again, anyone comforted by the knowledge you couldn't have spent the money lost since the market's peak until retirement, please raise your hand.

As with most economists and market participants, both Sullivan and Lonski agree with the message from the fed funds futures market: The Fed is highly unlikely to alter monetary policy tomorrow, either via tightening or easing. The only debate seems to be whether the central bank will change its statement regarding the prevailing risks in the economy.

"Everyone is geared up for no change at tomorrow's FOMC meeting," said Sullivan, who forecast the "maintenance of a balanced directive" by the rate-setting committee.

Notably, the Fed has learned in recent years to go against prevailing market sentiment at key moments, but they won't pull a stunner tomorrow ... right?

Lonski, meanwhile, believes the Fed will "probably make a statement that the evidence favors economic recovery, but nevertheless, downside risks remain considerable."

The FOMC may mention the absence of a recovery in capital spending, and "I think the policy statement very much is going to highlight the downside vulnerability of the U.S. economy," he said.

Certainly, it will be interesting to see if the Fed acknowledges the stock market's "downside vulnerability" as well, in either its statement or its deeds.

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.