The Federal Reserve today is expected to cut its key interest rate by at least 0.75 percentage points, boosting to three percentage points the amount it has cut rates since September, one of the largest proportional rate cuts in history. The move is just the latest to ignite alarm among economists that America is facing the worst financial crisis since the Great Depression of the 1930s.

“The Federal Reserve has turned the threat meter to red — if homeland security did this, the roads would be crowded with people trying to escape,” Vincent Reinhart, who helmed the Federal Reserve Board’s Division of Monetary Affairs until October and is now a fellow at the American Enterprise Institute, said. “This is the worst financial crisis since the 1930s.”

The decision to cut interest rates pales in comparison with Sunday’s news that the five Federal Reserve governors had agreed to provide liquidity to so-called primary dealers, such as investment banks and brokerage firms. The Fed, which has not instituted such a measure in three-quarters of a century, traditionally lends only to commercial banks.

News of this liquidity facility — its third since December — has been largely overshadowed by JPMorgan Chase & Co.’s deal to acquire Bear Stearns Cos. for just $2 a share. But economists who follow the Fed closely say this is a revolutionary departure for the agency, and they are shocked by the implications.

“I am totally surprised and the news makes me think, what is next?” the lead analyst and managing editor at research firm RGE Monitor, Christian Menegatti, said. “It brings a whole different level of uncertainty.”

The Fed is resorting to such measures because the economy is far worse off than in previous downturns, experts say. Unlike the crisis of the late 1970s and early 1980s, for example, when the devastation was limited to the savings and loans institutions, this time around the infection is spreading across all sectors. The many home buyers who took on too much risk have led to a rash of foreclosures, which lowered the value of the securities backed by these mortgages, which in turn resulted in billions of dollars in bank write-downs, which has had an impact on the innumerable other institutions that rely on the banks for transactions. Even municipalities are being hurt, as the monoline insurers that handled mortgages are unable to cover their losses, and cannot back even nonrisky products.

“Before, we were able to confine the problems, but now, losses are spread throughout the capital markets and nobody knows the depth of these losses or even where they are,” James Barth, a former chief economist of the Office of Thrift Supervision under presidents Reagan and George H.W. Bush who is now a senior fellow at the Milken Institute, said. “All of this uncertainty is creating a reluctance to buy securities or lend.”

While the Fed has adopted an extreme tactic by providing cash reserves and Treasuries to nonbanks, a measure that is expected to continue for at least six months, it does not address the real issue at play, the credit worthiness of mortgages, experts say.

“As with all other liquidity measures, this facility does not deal with or remove the underlying credit issues that plague the financial markets,” the chief economist at Merrill Lynch, David Rosenberg, said in a report yesterday. “Ultimately, the Fed is hoping that the liquidity injections transcend beyond just the primary dealers’ balance sheets into the broader marketplace.”

So far, this has not happened. According to the president of H.C. Wainwright & Co. Economics, David Ranson, this is because the Fed is targeting the wrong kind of liquidity. “The problem afflicting credit markets is not liquidity in the sense of a shortage of cash, but rather the unwillingness of buyers and sellers, or lenders and borrowers, to get together and trade.” The Fed cannot encourage people to loan money, and no amount of liquidity will change this, Mr. Ranson said.

Cutting interest rates also does not buoy the market — and may, in fact, exacerbate the problem. This is because there is an expectation that the Fed will continue cutting rates, so investors wait to borrow funds until the key interest rate is even lower.

“It is akin to a company announcing a price cut, but saying it will not take effect right away; people will wait till they can get that price cut,” Mr. Ranson said. “The economy could actually be pushed toward a recession by the same medicine that is supposed to prevent it.”

Not everyone is panicking, however. Some investors are relishing the chaos in the market and are hungrily buying up these stocks, despite the risk to the economy.

“As of this morning, we are buyers of JPMorgan, Citi, Lehman Brothers, and Thornburg Mortgage,” the CEO of Smith Asset Management in New York, William Smith, said. “The underlying assets are not necessarily bad, and if you look out one year from today, I think the analysts that are now downgrading the stock will be doing the exact opposite.”

Still, most experts say the economy may well be in a freefall, with some calling for even more extreme action. “Obviously, what the Fed has done so far has not worked, because nobody is lending,” a senior economist at Moody’s Economy.com, Gus Faucher, said. “A real government bail out needs to happen.”