The Federal Reserve has not officially lowered its main interest rate, the federal funds rate on the money banks loan to each other overnight. Many on Wall Street have expected a Fed funds rate cut. Many have demanded it, in screaming tones. But so far the Fed has cut only its less-important discount rate, which is the price charged to banks that borrow from the Fed directly. It hasn't cut the Fed funds rate. At least that's the official story.

 But when you look at the "effective" rate that banks are paying for overnight loans, the Fed has indeed cut the funds rate -- a ton. This little-noticed move may be even more responsible for recovery in the stock markets than the discount-rate reduction that got all the headlines. Last week banks were paying an average of only 4.91 percent on overnight loans -- far less than the Fed's stated target of 5.25 percent, according to the central bank's Web site. Last Wednesday the rate was as low as 4.77 percent -- almost a half percentage point lower than the official mark. The effective funds rate has been lower for more than two weeks as Chairman Ben Bernanke has injected billions into financial markets rattled by mortgage worries. The overnight rate is the Fed's main way of creating money: When it desires an infusion it buys overnight paper, thus creating a credit on the account of some bank and lowering the rate by bidding up the price of the paper.

We can only conclude that the Fed is intentionally missing its official target for the funds rate. It hinted it would do this two weeks ago when it said: "The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5-1/4 percent." What's YOUR definition of "close"? Everbody says the markets are waiting for a Fed funds rate cut in September. Hey, it's already here.