Wall Street bounced and Australia followed, but the Fed’s 0.75% rate cut doesn’t really change anything.

The Dow was up more than 400 points, or around 4%. Our market opened around 180-190 points higher. But we’ve been here before (only last Tuesday) and at the moment there’s nothing to stop us believing that there will be a big fall in the wake of this rally.

Interestingly two voting members of the Fed’s Open Market Committee voted against the rate cut: their stance was described as preferring “less aggressive action at this meeting.”

The Fed also cut its discount rate to 2.75% from the 3.25% set in the bailout and sale of Bear Stearns on Sunday night. That will go a long way to lowering the financial impact on banks using its discount window.

As the Fed made clear in its statement, the US economy continues to weaken, the stresses on the financial system are greater than at any time so far in the crisis and inflation remains a niggle:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased.

In normal times that reference to “uncertainty” in the inflation outlook would be seen by the markets as a signal to another rate increase at the next meeting.

But these are not normal times. There were a couple of useful reminders of the reality of the situation overnight: new home starts in the US fell again, but less than forecast, and the number of building permits for new projects, the best forward indicator, showed a worrying 7.8% fall in February.

Some analysts saw the overall fall of just 0.6% as a sign the new home market was steadying, but new housing is only 15% of the US housing market anyway and figures on sales of existing homes after Easter will be a much more important indicator.

And wholesale inflation was again a problem in February. It rose 0.3%, but was up 0.5% on a core basis with food and energy stripped out. There was a sharp 0.5% drop in food prices which offset much of the increase from oil.

Overall wholesale inflation (as expressed by the Producer Price Index) was up 6.4% for the year: down from the 7.1% rate in January, but still too high for the comfort of many in the markets.

Some analysts say that with consumer prices growing at less than half the annual rate of the PPI, quite a few businesses must be “eating” profit margin to avoid putting up prices in an economy tipping towards recession.