London - Global financial markets and the world economy are at "panic stations", according to HSBC Holdings, Europe's biggest bank by market value.
"Should the panic exhibited over the last few days turn into revulsion, the markets may never be the same again," HSBC economist Stephen King and strategist Richard Cookson wrote in a research report published on Monday. "The implied liquidity drain might leave the financial system and the broader economy more vulnerable than we currently believe.
"Central banks can add liquidity and cut rates, but the world economy is now at risk from financial market seizure. The central banks may be able to control the price of money, but at the moment it is quantity that counts."
HSBC expects the Fed to cut its key rate by 0.5 percentage points to 4.75 percent by the end of the year. It cut its discount rate by that amount on Friday to keep credit flowing.
Hargreaves Lansdown analyst Keith Bowman said the Fed's move was "seen as easing the difficulties, but it is not seen as potentially removing them. For that reason, markets are still set for uncertainty."
European stocks fell yesterday despite earlier gains in Asia. London's FTSE-100 index fell 0.66 percent in midday trade.