Market reaction to Fed rate cuts

Hi there, im new to the forum and am relatively new to trading in general.

I was wandering if anyone could explain why there was such a great response in the markets yesterday to the Fed's rate cut considering the banks are already lending to one another at almost 0% anyway.

My guess has been that the rise in market prices was a psycological reaction. Afterall given the fact that 0% lending is and has already been in effect between the banks for a while, the actual changes in the economy due to the amount of cash in circulation is surely going to remain the same, which would mean there should be no fundamental changes to the economy. Is there more to it than this or does that sound about right?

Thanks

I think it is normal for the markets to react to such desperate measures, even though they are not really affecting the actual panorama, because drastic as the rate cut is, it is not going to cause that much to the consumers behavior for two basic reasons, fear is still the king and the Banks are not giving away loans to someone they can consider a risky debtor even from far, and people is not so eager for debt either.

I see. So the markets often do not react to announcements based on the underlying impacts the news has so much as what they usually would expect others to do after of the announcement. Makes sense given people are trying to to make money.

I have been trying to access whether the market is actually a true reflection of the economic state of things/ or how much of it is down to hype. The market did actually correct the next day and has gone down more since. This made me wonder if the news releases just cause temporary divergances from true economic thresholds, or whether the market is just a constant reaction to new pieces of data based on what people expect others to perceive. Of course I think its fair to say in the long term, markets will act as coincidence indicators to the business cycle (by markets im refering mainly to major leading indicies really), but personally I am most interested by what point - by sense of some kind of time period, would a market begin reflecting true economic health. That is to say, over how many days for example could a number of economic releases go on for, before it begins to lead to creating a realistic sense of where the real state of the economy is. I am aware that a proportion of releases may indeed be accurate, and so cause no alarms, but at the end of the day, if the markets are reacting to the releases that dont affect the economy really as with the fed cut, or even, in a not too disimilar way, economic releases that are really just samples, as with gdp, cpi (i.e. real levels are likely to be a way off a given level in the indicators, even if it is a small difference) etc.. then at what time scale does a variating daily and hourly concession of economic health become a more broadly accurate depiction of the economy when looking at an index like the S&P?

Any ideas on this would be appreciated