For markets that have come to pride themselves on their agility and instant responsiveness, the news that the U.S. Federal Reserve Board sees the same old, same old for the U.S. economy comes as a major disappointment.

The Federal Reserve Board cut rates another 25 basis points today to 3.5%, and markets sold off in response. TD Bank says that, “The recent stream of disappointing economic data suggesting the floundering U.S. economy is far from turning the corner prompted the seventh interest rate cut this year by the Federal Reserve today. More importantly, the tone of the missive accompanying the move was virtually unchanged from that of the June FOMC meeting, stressing that weak conditions persist Stateside.”

With no change in course from the Fed, both traders and economists are coming to accept that it might take a while to turn around the economy. “And, there is no doubt that the health of the U.S. economy remains tenuous. Second quarter U.S. GDP growth may well be revised down into negative territory when the more complete estimates are released on August 29th and the prospect of a contraction has heightened speculation that the U.S. economy is headed for — or in fact is already in the midst of — a full-blown recession.”

TD continues to believe the Fed will cut rates by 25 basis points again in early October, and it now suggests that further easing beyond October cannot be ruled out.

CIBC World Markets reports that futures are already pricing in an 80% chance of another 25 bps move in October. “Nevertheless, the Fed’s logic behind this rate reduction hints that 3.25%, our earlier target for the funds rate, may not end up being its final resting point in this easing cycle. It’s hard to see the two major sources of weakness — capital spending and exports — looking much different come year end. Capital spending responds to profits and capacity use, the latter on a clear downturn, and the former, if CEOs’ recent warnings are on the mark, still struggling in the quarter ahead.’

“Beyond the U.S. market, the same areas of economic weakness, largely affecting manufacturing, are hitting most of the industrialized world, and central bankers are likely to follow the Fed’s logic in bringing rates lower,” says CIBC World Markets. “Look for the ECB to give up its intransigence, easing as much as 75 bps by year end. The Bank of Canada is set to match the Fed’s quarter point cut next week, but it too will be trimming rates at least as fast as the Fed thereafter as the Canadian economy languishes in the face of tumbling export prospects.”