Cries are getting louder for emergency interest-rate cuts this week, something that's been reserved for pandemics or terrorist attacks

• July's jobs report fell well short of expectations, prompting recession fears and a stock market sell-off.
• Some have called for emergency interest rate cuts this week as a result.
• The Federal Reserve has only cut rates off-cycle in extreme emergencies, like 9/11 and COVID-19.

The US stock market is plummeting. Investors are panicking, and they're calling for the nation's central bank to cut interest rates over a month before the Fed's next meeting.

Doing so would align today's economy with that of a pandemic and major terrorist events.

On Friday, the Bureau of Labor Statistics released July's jobs report, which found that the unemployment rate rose to 4.3%, the highest reading in nearly three years. Job growth fell well short of expectations and sent stocks plunging — with many pointing their fingers at the Federal Reserve for waiting too long to cut interest rates after holding steady at its meeting last week.

The fallout from the jobs report has continued over the past few days. The US stock market tanked on Monday, with the Nasdaq and Dow Jones indices plunging. Japan's main stock market index was down 12.4% on Monday in response to both the US jobs report and Japan's latest interest-rate hike.

The global panic has prompted some economists to call for the Federal Reserve to implement an emergency interest rate cut this week; Bloomberg reported that traders were predicting a 60% chance of a rate cut within the next week. The Federal Open Market Committee is not expected to meet again until September 18, during which it's expected to cut interest rates after holding them steady for nearly a year.

Wharton professor Jeremy Siegel told CNBC on Monday that the Fed should make an emergency 75 basis-point cut this week and that there should be "another 75 basis point cut indicated for next month at the September meeting — and that's minimum."

"How much have we moved the fed funds rate? Zero," Siegel said. "That makes absolutely no sense whatsoever."

The Fed has not given any indication as to whether it will cut interest rates this week, but it's only done an emergency cut in extreme situations in the past — and it doesn't look like the US economy is quite there yet. However, with concerns that the Fed is no longer able to achieve its soft landing and avoid a recession, calls for relief will likely grow.

The history of emergency rate cuts

Emergency interest rate cuts are extremely rare, and the Fed has done so sparingly in the past. There were a series of off-cycle interest rate cuts in 2001 following the dot-com bust and later the September 11 terrorist attack, both of which crashed the stock market.

"In the past, the Federal Open Market Committee (FOMC) has responded to weaker economic conditions, which are often associated with downward pressure on the price level, with a lower federal funds target," the St. Louis Fed said of the 9/11 attacks in a January 2002 note. "The present case has been no exception; the FOMC reduced the federal funds rate target four times in the three months following the attacks."

Later in 2008, the Fed implemented emergency rate cuts following the housing market crash, and most recently cut rates off-cycle in March 2020 in response to the beginning of the COVID-19 pandemic.

Still, among calls to cut rates this week, some experts are urging against an overreaction. Jim Smigiel, chief investment officer and financial services company SEI, said in a statement that "emergency Fed rate cuts being priced in makes little sense given the economic backdrop in the U.S. and would only serve to destroy policy maker credibility."

If the Fed doesn't cut rates this week, there will likely be increased pressure on the central bank in September to cut rates more aggressively. Powell said during a press conference last week that any decision will be made solely based on data, and he "can imagine a scenario in which there would be everywhere from zero cuts to several cuts, depending on the way the economy evolves."