ALL BUSINESS: Fed Rate Cut Futility

If only that were so.

Instead, jumbo mortgage rates are higher now than they were when the Fed began taking monetary action in September and have even shot up since the central bank's aggressive rate cuts late last month. That makes it harder for homeowners to refinance those loans.

Companies are also paying to borrow money from banks and for the yields they have to offer to woo investors to buy their corporate bonds, which means businesses will be more pressed to hire workers or build new facilities.

Taut financial conditions have gotten even tighter, despite the Fed. Risk is being repriced throughout the marketplace, adding more stress to the already fragile economy.

This presents a problem for the Fed. It clearly needs to cut rates more to stimulate economic growth, but rising inflationary pressures limits how low the central bank can go. U.S. consumer prices jumped by a higher-than-expected 0.4 percent in January and rose 4.3 percent over the past 12 months.

If the Fed knocks down the overnight rate it controls too far, that could send the dollar even lower, making imports from toys to T-shirts to televisions more expensive and further boosting pricing pressures.

Since September, the Fed has cut its federal funds rate what banks charge each other on overnight loans by 2.25 percentage points to 3 percent. It also has taken down its discount rate on direct loans it makes to banks by 1.75 points to 3.5 percent.

The biggest action came in January when it was clear that the housing market collapse was intensifying and credit markets were seizing up due to a lack of liquidity. Two big rate cuts over a nine-day period including an emergency rate decrease that took the market by surprise slashed the fed funds rate by 1.25 percentage points.

But that has done little to bring relief to financial markets. The Standard & Poor's 500 index has lost about 9 percent since the September rate cuts began and credit spreads in some corners of the financial world have significantly widened.