Do you "believe" in rational expectation (important) by Scott Sumner

Is he saying that if the Fed had lowered rates by .50 or more in December 2007 things might not have been so bad?

As Sumner points out, the January 2001 and September 2007 Fed cuts caused short term rates to decline and long term rates to rise as well as a stock market rally. In December 2007, the Fed cut rates by .25:

The fed funds futures showed a 58% chance of a 1/4 point cut and a 42% chance of a 1/2 point cut. The more than two percent fall in US equity indices after the 1/4 cut was announced implied a 5% swing in US equity prices hinged on the Fed decision. And foreign markets seemed to respond almost equally strongly–implying that the Fed’s decision destroyed well over a trillion dollars in shareholder equity worldwide.

They kept cutting after but it didn't help as Bear Stearns was bailed out in March 2008. Maybe the system was such a house of cards that it didn't matter how much the Fed cut. Maybe if they cut more and bailed out Lehman and everyone else, there wouldn't have been a panic? But we wouldn't have had Dodd-Frank.