(March 19) – “The Federal Reserve will meet tomorrow to decide how much to cut interest rates in an effort to revive the economy just when a falling stock market seems to have the power to bring on a recession,” writes Louis Uchitelle in today’s New York Times.

“No one doubts that Alan Greenspan, the Fed’s chairman, and his fellow policy makers will reduce the federal funds rate from its current level of 5.5 percent when they gather in Washington. The question is can a big enough rate cut keep the 10-year- old expansion rolling.”

“Many on Wall Street are lobbying for a cut of three-quarters of a percentage point, or even more, to stop the sell-off of stocks. But other experts argue that a half-point cut is enough for an economy that, apart from the market, still has considerable strengths.”

” ‘What I am concerned about is that we are heading into the unknown because of the stock market,’ said Ian Shepherdson, chief domestic economist at High Frequency Economics, who favors a reduction of three-quarters of a percentage point. ‘We have never had so big a decline in stock prices at a time when stocks were so widely held.’ “

“The debate over how far the Fed should go to reduce short-term interest rates — thus influencing what lenders charge for mortgages, home equity loans and other credit — reflects very different views of the market’s impact on the economy.”

“The Fed’s policy makers, including Mr. Greenspan, have soft-pedaled this impact. They have repeatedly stated that their goal is to target the real economy, asking themselves what must be done to increase lackluster consumer spending, work down a backlog of unsold cars as well as other goods, keep up home sales by reducing mortgage rates, and the like. The stock market, in this view, is just one ingredient in the mix.”

“But the meeting tomorrow will come after a week of plunging stock prices. And many are urging the Fed to recognize that the economy now dances to the stock market, not the other way around.”