In a surprise move, Chairman Ben Bernanke's Federal Reserve took action Aug. 17, abandoning its hawkish stance and acknowledging that the severe market deterioration has threatened economic growth. But questions still linger as to whether such actions are enough.

Earlier in the day, the Federal Reserve unexpectedly announced that it cut the primary credit rate for member institutions, also known as the discount rate, by 50 basis points to 5.75%. Additionally, the Fed broke from its usual practices by allowing the provision of term financing for as long as 30 days, renewable by the borrower.

The changes offer some relief to financial institutions that have faced intensifying liquidity issues in recent weeks as the market for subprime and other mortgage-backed securitizations seized up. Now, Fed member institutions can go to the so-called discount window and get a secured loan using those illiquid assets, both less expensively and for a longer period of time.

"That's the big deal," Eastern Bank economist John Bitner said. "Suddenly those illiquid assets have some liquid value to them, and it allows for money to be injected into the system."

The Fed said that it will maintain those changes until market liquidity has "improved materially."

Perhaps more importantly, however, is the notable change in the Federal Reserve's stance toward inflation by acknowledging that tighter market and worsening credit conditions, as well as greater uncertainty about the future, have considerably raised the threat to economic growth. "The downside risks to growth have increased appreciably," the Fed said in its Aug. 17 statement.

Thomas Urano, a vice president of portfolio management at Sage Advisory Services, told SNL that the Fed's latest statement marks a significant shift from its prior stance. "At the last meeting they left the bias toward tightening, [saying] that growth was intact and inflation was [the] primary concern," Urano said. "The statement this morning changed that."

Bitner also noted the Fed's change of heart.

"When it's Wall Street's problem, the Fed kind of stands back and lets them do their thing. But when it starts to affect Main Street, then they begin to take action," he told SNL. "That statement — that it has the potential to restrain economic growth going forward — basically is acknowledging that this could have some impact on Main Street."

But while many industry observers noted the Fed's easing language, they were also quick to point out what the Fed still has yet to do: cut the federal funds target rate itself, which currently stands at 5.25%.

"The decision not to cut the Federal funds target rate likely reflected the Fed's desire to appear resolute but not panicked in responding to market events," Calyon Securities economist Michael Carey wrote in a report. Carey added that while the Fed's actions would likely have a "positive effect on gloomy market sentiment," he added that it is still "unclear if it will be enough."

Friedman Billings Ramsey analyst Gary Townsend thinks the discount rate reduction signals that a near-term fed funds rate cut is more probable, writing in a report that the Fed could possibly make the announcement at its September meeting. Like others, Townsend highlighted the shift in language, singling out the lines stating that "downside risks to growth have increased appreciably" and that the Fed "is prepared to act as needed."

Futures activity could also provide some gauge of expectations. September 2007 fed funds futures as of 1:21 p.m. ET were biased toward a 25-basis-point cut.

Whether regulators decide to make that move or not, the spectre of a cut could bring some gun-shy investors back to the financial sector, particularly small- and midcap banks, according to a report from JPMorgan Securities analysts Steven Alexopoulos and John Pancari.

While cautioning that credit quality pressures are still an issue, the JPMorgan analysts recommended in a report that investors looking to "play the space" choose high-quality names like Zions Bancorp. and Cullen/Frost Bankers Inc., event-driven plays like Synovus Financial Corp., and turnaround stocks like PrivateBancorp Inc. and BankUnited Financial Corp.

In Townsend's view, banks dependent on spread income and core deposit funding would benefit most from a drop in short-term interest rates, and he mentioned Signature Bank and Commerce Bancorp Inc. as examples.

More broadly, the Fed's action and comments on Aug. 17 offer the market greater insight into the Bernanke Fed, Eastern Bank's Bitner said, as it marks the regulator's first real reaction to a crisis situation.

"The big question up until this morning was: What will Bernanke do?" the economist said, explaining that since the Fed Chairman was "untested," markets were unsure as to when and how he would react to a given situation.

"I think the market is breathing a big sigh of relief, because … now we know he's going to come in and do something."

In terms of the Fed's response itself, the economist said that Bernanke "played it just right." Whereas Bernanke's predecessor, Alan Greenspan, "was more prone to come rushing in and take pre-emptive action," the economist said, Bernanke has shown that he does not coming running in at the first sign of trouble.

But Bernanke demonstrated with the Fed's latest announcements that he will, eventually, take action.

"So I think his creditability went up a couple notches here," Bitner said.

Of course, there are certainly those who preferred Greenspan's rush-to-the-rescue approach. Among them, no doubt, is CNBC market pundit Jim Cramer, who famously fell apart on live television earlier in August while criticizing Bernanke as an "academic" and exhorting the Fed chairman to open the discount window amid an "Armageddon" in the fixed-income markets.