There are plenty of questions about the U.S. Treasury Department bailout plan’s final design and whether it will work or not, but financial markets likely won’t be comforted until the it is passed, analysts suggest.

In a research note, Morgan Stanley points out that there’s no guarantee that the Paulson plan will work. It argues that legislation must be passed quickly, and then the authorities must use their new powers aggressively. Even then, it won’t quickly reverse the global economic slowdown that is now underway, it cautions.

That said, “This comprehensive plan looks like a game changer to us: It makes more likely our expectations for economic recovery within the next year and it means that investors should look for opportunities in risky assets.”

If the plan works, Morgan Stanley explains that it will take some of the burden off monetary policy to help financial markets, financial firms and the economy. “Put simply, if the plan succeeds in easing financial conditions, then to some extent it serves as a substitute for an easier monetary policy,” it says.

However, Morgan Stanley’s European analysts still believe there may be central bank cuts as well. Given the uncertainty surrounding the plan’s fate, its details and its implementation, it says, “In the meantime, economic and financial conditions could well deteriorate further and a rate cut may become necessary to bridge the gap until the Treasury’s plan can be put in practice.”

It warns that rate cuts are no panacea, and they may spark inflation concerns. “However, the deterioration in the health of the financial sector and the related severe strains in the funding markets have also increased the tail risk of a deflationary outcome for the real economy. That’s why we believe that policymakers may soon be forced to pull all available strings, including rate cuts by all the major central banks.”

BCA Research says that the turmoil in financial markets earlier this week reinforces the fact that investors remain highly concerned about the outlook for the global economy and policymakers’ ability to address the underlying problems. “Uncertainty is likely to prevail in the days ahead, as the Treasury’s plan to bail out the financial system is undergoing revisions to deal with political realities,” it comments.

Ultimately, BCA believes that a more robust plan with broad-based political backing should emerge. “If so, then that would bolster investor confidence and put a firmer floor under prices for risky assets. In the meantime, investors should expect volatility to stay high, warranting continued caution and a focus on longer-term fundamentals rather than short-term price movements.”

Morgan Stanley also indicates that if the plan does work as expected, then it could revive the outlook for risky assets. It says that, “by reducing risk premiums and the downside ‘tail’ risks for the economy, and creating balance sheet capacity for lenders, it should alleviate the credit crunch, narrow credit spreads, and promote expectations of lower risks for and an eventual rebound in earnings.”

Even so, it cautions that the U.S. and global economies face severe challenges over the next year. “As such, we strongly prefer high-quality assets and investment-grade debt,” it says.