TWO weeks have passed since equity markets around the world finally caught up with the consequences of the global credit crunch and share prices plummeted.

Economic and financial armageddon beckoned according to the snap judgment of the gloomier reaches of the commentariat. But two weeks on, thanks principally to aggressive rate-cutting by the US Federal Reserve, armageddon has, it seems, been postponed, at least as far as the second-hand prices of corporate assets are concerned.

With the same central banker brio exhibited by his predecessor Alan Greenspan after the global tech-bubble burst in 2000, Fed chairman Ben Bernanke has presided over a dramatic loosening of monetary policy which has already seen US interest rates slashed by nearly a third, with hints of more to come, should it be needed.

On top of that cumulative cut, from 4.25% to 3% in two rapid-fire installments, President George W Bush is urging Congress to pass a stimulus package of its own, worth around another 1% of American GDP.

There is near-unanimity in the City here that, when the Bank of England's Monetary Policy Committee completes its next rate-setting meeting on Thursday, UK interest rates will also fall, albeit by a much-more-modest quarter-point, to 5.25%.

A government-sponsored stimulus here looks much less likely, given the deteriorating state of the UK's public finances. Some £14bn of tax cuts are already pencilled in for this March's budget, but the Institute for Fiscal Studies is already suggesting some £8bn of that should be clawed back through countervailing tax increases, if things are not to descend into an even bigger mess.

So will this central bank counter-offensive do the trick? Two weeks ago, one leading Glasgow fund manager, Jim Fisher, suggested the stock market rout had been driven by 5% reason and 95% emotion.

Is cheaper money - dramatically cheaper, in the case of the US - already rebalancing that skewed market psychology of January 21 and giving a more rational assessment of our economic predicament a breathing space in which optimistic investors can reassert themselves?

There are certainly some rock-bottom share price valuations out there, almost suggesting some banks will never write another profitable loan, some housebuilders will never complete another sellable unit and some high street names will never shift another pair of socks.

But it is much too early to be sure that the central bank cavalry have already seen off the forces of deflation and recession. Before anyone can say with any certainty that the cavalry has triumphed, we have to see how other vital aspects of the recent crisis work their way through into the real economy.

We do not know how the ongoing repricing of risk in the financial sector will affect business activity in the rest of the econ-omy. Will it also help reshape consumer demand?

Will corporate investment take a hit as banks become much more choosy about which propositions they will lend on? Even if the base rate falls, will mortgages become harder to get - and only on terms which mitigate whatever the MPC shaves off the bottom line cost of money this year?

If the Fed's proactive stance on rates does re-energise demand in the American economy, might it also stoke inflationary pressures and, ultimately, ferment the conditions for another bubble and another looming crash, albeit someway down the road?

After all, the unwinding of the great Greenspan rate-cutting cycle helped spawn the sub-prime mortgage crisis, which then infected a global financial system that had enjoyed excessive deregulation and lost sight of the true measure of the risks it was taking on board.

And if, despite the best efforts of Bush and Bernanke, the US economy does slip into a significant recession this time around, the consequences for the rest of the global economy could be just as profound. With the next race to the White House well under way, there will be protracted uncertainty about who - with what policy prescriptions - will emerge to pick up the pieces.

In the meantime, any serious disruption to the era of sustained, low-inflation growth and burgeoning globalisation of the terms of trade we have all enjoyed since the start of the 1990s could throw up new international tensions, already visible in protectionist sentiment over the offshoring of jobs and the way in which sovereign wealth funds from the Middle East and Asia are buying up high-profile tranches of western economies.

The ultimate unknown is how millions of ordinary families around the world will choose to react to any significant changes in their sense of material wellbeing. Will a successful campaign to reignite demand have them busily collaborating with the creation of the next bubble, in housing or wherever? Or will they, instead, become much more cautious and rebalance their own attitude to saving and spending?

We simply don't know. And until we find out, we cannot have any real confidence that armageddon has been written out of the script.