When the Federal Reserve’s policymaking committee lowered is benchmark rate by a quarter percentage point on Wednesday, it demonstrated that it lacks the sway it used to have over the economy.

Wall Street greeted the quarter-point reduction—even though Fed Chairman Jerome Powell hinted that more cuts might be on the way—with a big raspberry. The S&P 500 slid 1.1% in response.

Right now, the Fed doesn’t have much firepower to counter an economic downturn. During the financial crisis, the benchmark Fed funds rate stood at 5.25%, almost double the current level, and the central bank took it to near-zero. How much effect would taking it to zero have nowadays? Answer: a lot less.

Also, the Fed chose this week to end its efforts to whittle down its enormous ($3.8 trillion) bond stash. During its long spate of quantitative easing (QE), the Fed bought Treasuries and mortgage-backed securities, mostly from commercial banks, to pump liquidity into the banking system. The idea was to give the banks cash to lend.

So, with cutting short-term rates a less powerful tool than before, the Fed will need to focus on QE to mitigate the next recession. Alas, banks are stuffed to their ears with this cash, hence they don’t need the extra money to push them to lend.

How well has Fed intervention worked in the past? The extent of it is tough to quantify. That’s because, as former Fed Chairman Ben Bernanke once wrote, no one knows what would have happened if the Fed had done nothing.

Few doubt that Washington’s counter-cyclical response to the 2008-09 financial crisis, a large part of it from the Fed, was essential to stopping the carnage and preventing the Great Depression 2.0.

While quantifying how the positive effect of the Fed’s efforts is hard, some scholars have given the question a stab. By the estimate of the liberal Center on Budget and Policy Priorities, in 2011 (two years after the recession was over) real GDP was 16% higher and joblessness was seven percentage points lower than they would have been without those rescue measures. 

As far as QE goes, however, the Fed’s efficacy is unclear. QE’s impact, said George Mateyo, CIO of Key Private Bank, “is analogous [to] religion: You believe it, or you don’t.” He himself thinks QE did a good job stabilizing the economy’s scary situation, but “you can’t continue this forever.”

The Fed has little effect on two big problems the economy faces: uncertainty over trade policy and a too-strong dollar. “In theory,” said Chris Zaccarelli, CIO, Independent Advisor Alliance, “cutting rates could help the latter problem, but in practice it will be ineffective.” That’s because the European Central Bank and the Bank of Japan are easing policy quicker, and have even lower rates.

As far as trade goes, a quarter-point reduction “won’t be able to solve business uncertainty caused by the trade war with China,” he said.

One thing is certain, President Donald Trump, who has been criticizing the Fed for not moving more boldly to ease policy, said David Riley, chief investment strategist at BlueBay Asset Management, “will not be satisfied by ‘one and done’ rate cut nor will be the market demanding monetary sugar. It is a tough time to be Fed chairman.”

The Fed’s low interest rates very ably did one thing, and continue to do it: They chased investors into riskier assets. Thus, the S&P 500 has quadrupled since its March 2009 low. And stocks rose much faster than their underlying earnings, which means that in price/earnings ratio terms (23 times trailing earnings) they are very expensive.

Thanks, Fed.

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Tags: Ben Bernanke, Donald Trump, Federal Reserve, Interest Rates, Jerome Powell, quantitative easing