Cutting the Fed Funds Rate and the discount rate 25 basis points on Tuesday were not enough to satisfy Wall Street, and the Dow Jones Industrial Average, NASDAQ, and the S&P 500 all fell by more than 2 percent in the wake of the Federal Reserve Board's rate cut announcement.

But investors and others woke up Wednesday to an early-morning report on the Wall Street Journal's Web site citing an unnamed Fed official saying that the regulatory body was considering further steps to spur the market. And the news was that those moves could come immediately, without further delay, and not some time in 2008.

A short time later, the Fed released a statement that that the first step will come on December 17, when it will auction funds under the Term Auction Facility (TAF) program to depository institutions that could be used in loans to other banks and financial institutions.

"By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress," the Fed statement announced.

Brian Bethune, US economist at Global Insight, Lexington, Mass., says that the Fed's announcement on Wednesday was unrelated to the market's negative reaction and stock losses on Tuesday, noting that such plans take months to work out.

The first TAF auction, for $20 billion, is set for Monday, December 17, and will provide funds that will mature January 17. A second auction of up to $20 billion is scheduled for Thursday, December 20, and will provide term funds due January 31. The two remaining scheduled auctions are set for January 14 and 28, though the Fed left open the possibility of conducting, "additional auctions in subsequent months, depending in part on evolving market conditions."

The Federal Open Market Committee also authorized temporary currency swaps with the European Central Bank and the Swiss National Bank for amounts up to $20 billion and $4 billion respectively for use in their jurisdictions. The arrangements are approved for six months.

Reaction to the Fed's announcements was swift and positive.

"That gives me confidence that they are going to make sure the market remains liquid," John Burns, president of John Burns Real Estate Consulting, Irvine, Calif., says in an e-mail.

Moody's chief economist Mark Zandi, calls the move "much needed both in response to the market's negative reaction to yesterday's rate cut, but also to help settle the global financial system."

The Fed's announcement unveils a new tool in the effort to bring liquidity to the financial markets, says Christian Weller, senior fellow at the Center for American Progress, Washington, D.C. and a professor at the Univ. of Massachusetts, Boston. And the Fed is demonstrating it means business by coordinating with other central banks, making money available to a wide range of banks in the U.S. and abroad, and by making it easier for banks to borrow, says Weller.

Still, it may not work, Weller warns.

"The problem is still that this is a supply solution that assumes that demand is out there. There is clearly some unmet demand, but I think that at this point, the attention has to be also on fiscal policy to stimulate economic demand," Weller says. "The idea that the Fed can solve all of the country's economic woes contradicts basic macro economics."

But the Fed's various moves will have little impact on people with mortgages. Fixed rate mortgages will not be impacted, and up to 50-60 percent of all adjustable rate mortgages are tied to London Interbank Offered Rate (LIBOR), which the Fed does not control, Bethune says.

"If you are really trying to do something to alleviate those stresses related to adjustable rate mortgages, then so far the Fed has been pulling on a string," Bethune says.

However, Bethune says the swap agreements with the European banks could eventually drive LIBOR lower.

"It should ease the liquidity squeeze on European banks, which has been the main issue that has been playing out here in causing this problem in the global interbank market," Bethune says. "It is designed to eventually translate into lower borrowing rates."

And Weller says the Fed's moves could ease the housing market's pain, though a solution requires more than just Fed action.

"The overall effect (on home builders and home buyers) is that the situation will not get worse as quickly as many fear due to the Fed's efforts," Weller says. "It is, in my view, incumbent on the political players (Congress and the Bush administration) to find solutions to slow the spread of the foreclosures and to strengthen income growth. Otherwise, the situation in the housing market will likely deteriorate further."