As Wall Street rallied this week, it seemed that investors were taking comfort in the notion that the economy had become so imperiled by the crumbling housing market that it was forcing the government to finally mount an aggressive rescue effort.

Investors found reassurance yesterday in talk that the White House was brokering a deal with banks that could diminish a looming tidal wave of home foreclosures. Soothing words from the Federal Reserve earlier this week revived the hope that more interest rate cuts are on the way, drowning nervousness in a din of buying.

“The market now feels comfortable that the Fed has come to appreciate the severity of the situation,” said Robert Barbera, chief economist at the brokerage and advisory firm ITG. “The bad news gives you the blessing of lower interest rates.”

But even as investors took heart in palpable signs that the government was preparing to dole out more medicine for the ailing economy, a number of economists cautioned that the pain itself was still unfolding, with its ultimate magnitude far from known.