So the Fed moved, startled by the sharp falls in world markets on Monday and Tuesday, upping its cut from half a per cent to an ungainly 0.75%.

Why it wasn’t a full one per cent cut is unexplained: it would have been easier, but perhaps the Fed board wants some applause for a follow up 0.25% cut at next week’s meeting. The markets are already demanding another 0.50% cut.

The cut is the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990 but some commentators still claimed it was irresponsible and “insufficient”. Others, in the US especially, applauded the move.

It has helped calm markets. Europe rebounded and Wall Street’s losses were cut back from the 4%-5%indicated by the futures at the opening (466 points for the Dow) to around 1% at the close (down 128 points for the Dow).

North of the border, the Bank of Canada was cutting its key rate by just 0.25% to 4%, even though the Canadian economy (well, the eastern half) is locked into the US and feeling the impact of the credit crunch. That’s a good indication of how much deeper America’s economic woes are.

We now have a federal funds rate of 3.5%, while headline US consumer inflation is at 4.1%. That the US now has negative interest rates tells you an awful lot about how the Fed and others view the slowing US economy and its prospects.

Inflation is not a concern: it received a passing mention in the statement accompanying the rate cut, but it is not the big issue it was after the October meeting. The economy and its woes are.

The 0.75% cut will not bail out Wall Street or get the US consumer spending again but it should soften the impact of the economy’s landing at the bottom, wherever and whenever that happens.

In one key phrase in its statement overnight, the Fed said, “Appreciable downside risks to growth remain.” That’s Fed speak for “it ain’t going to get better soon”.

The Fed also said: “Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets”. The health of the housing sector will be tested tomorrow by the release of the latest figures on sales of existing homes. It is not expected to be encouraging.

And that’s something people should keep an eye on — what’s happening to US housing demand (new and existing) and prices will tell you when the bottom is reached, but not when the rebound will happen, although brokers and others on the buy side will attempt to anticipate that.

With more losses coming from failing bond insurers, credit card defaults and dud car loans, US banks are in for a rocky time well into 2008. Takeovers, private equity deals and hedge funds are not going to be big earners, nor is housing or selling credit to reluctant consumers.

More job losses are ahead for the US economy, which the Fed acknowledges.