Pity the Federal Reserve. Given extreme uncertainty about the trajectory of the US economy, it is like a poker player in a hand with a big pot and every player still in: placing a monetary policy bet takes luck as much as judgment. A sound case can be made for the Fed’s aggressive interest rate cuts of 125 basis points in eight days, although a sound case could also be made for a more gentle approach.

The question is whether financial market troubles will create feedback loops in the economy. If falls in house prices increase credit losses at banks, which reduce mortgage lending and so create further drops in house prices, then a deflationary spiral could take hold. Equally, it might not. That uncertainty, and uncertainty about whether monetary policy will work at all given the parlous state of the banks, makes a sensible strategy hard to formulate.