The rate cut nearly everyone was expecting wasn’t apparently enough, with the Federal Reserve dropping its Federal funds target rate 25 basis points to 4.25 percent on Tuesday. While that represented the lowest target rate in two years, investors were clearly expecting the Fed to do more in an attempt to contain housing woes and a mortgage credit crisis that many see as a threat to overall economic stability. Here’s the full FOMC statement. While the Dow plunged -2.14 percent to to 13,452 nearly immediately after the news, and the Nasdaq composite fell -2.4 percent to 2,652, mortgage-related stocks fared far worse. Countrywide (CFC) fell -9.4 percent, Fannie Mae (FNM) lost -7 percent, and Freddie Mac (FRE) plunged -10.6 percent. IndyMac (IMB) fell -9.73 percent, while Wells Fargo (WFC) lost -5.73 percent. Investment banks got knocked around as well, with Goldman Sachs (GS) dropping -5.8 percent, Morgan Stanley (MS) off -8 percent, and Merrill Lynch (MER) down -5.7 percent. From the Associated Press:

“Fed’s language clearly reflects a heightened degree of concern about the economic outlook,” said Carl Tannenbaum, chief economist at LaSalle Bank. “They left open the possibility of additional rate reductions,” he added. If the economy were to take a turn for the worse, another rate cut could come before the Fed’s next scheduled meeting on Jan. 29-30, Tannbenbaum said.