Well the Fed can’t keep on cutting because there will be nothing left to cut (like Japan/pushing on a piece of string) , but especially because bond yields would shoot up as the markets feared much higher and endemic inflation. So since long term rate mortgages are so important in the US, he would not want to totally spook the bond market when we move into 2009.
Xboxboy……… The Fed will raise rates once any recession is technically over. For example. say -1.0% pa annualised growth in Q1, Q2 and Q3, nothing in Q4 and 1% pa annualized in Q1 09. Rates may move down a bit more now and then raised in Q4 or Q1 08 and raised much further, faster as long as positive growth is forecast. This is the only way to bear down on inflation in the medium term and/or stop a new bubble growing after 2010. Bernanke has to raise rates quickly to a level significantly above core inflation once the recession threat/ reality has passed to avoid repeating the mistakes of Greenspan.
The Fed as you say must keep employment up, but in practice this means keeping growth going. If the groth numbes aboev occured, the main part of the economy would not be in recssion. it would primarily be the boom bits then went down(and need to ); eg house construction and mortgage brokers!
