The Fed is being leaned on for a cut in the Fed funds rate; some market watchers want a cut before the Fed's scheduled meeting in Jan. One of the problems the Fed (Bernanke) is dealing with is a lack of confidence - right now they are damned if they do, damned if they don't. A Fed inter-meeting rate cut might sooth the markets temporarily, but they will also want a cut at the Jan meeting, IMO. Two rate cuts in the same month would signal very serious financial problems, and I'm not sure that is a message the Fed wants to convey.
With that said, major financial institutions are in serious trouble (CITI and Merrill getting an infusion of money from foreign sources to remain viable are two examples), and consumer spending (an indication of consumer confidence) for Dec was weaker than expected. Watch for a cut by the Fed at their Jan meeting - not sure they'll cut before that meeting but if they do I think the markets would tank as that would confirm serious problems DO exist.
Ms. Schwartz comment, "the new group at the Fed is not equal to the problem it faces" is interesting and IMO underscores the lack of confidence the financial markets have in the ability of today's Fed to turn things around. Then again, is it the responsibility of the Fed Reserve to turn the financial markets in one direction or another?
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