If I were a mainstream economist and on the FOMC (I’m not either, they are both), and world equity markets were firm going into the meeting next week with the monoline issue put to bed, I’d opt for no cut.

That would be expected to rally the $, take down gold and most other commodities, and be taken as a strong move to ‘keep expectations well anchored’ before they had a chance to elevate.

Equities might sell off initially, but be encouraged with the knowledge the Fed was keeping inflation under control, and therefore not get involved into a prolonged, rate hiking fight against inflation down the road.

Also, confidence in the economy would be conveyed, as the no cut decision would be taken as a statement from the Fed that the economy didn’t need further rate cuts.


5 Responses

  1. With the FED in panic mode and the media spinning the doomsday card, whats going to keep America spending $$$ when all they hear in the media how terrible it is. The Media is in control here. You and I know whats going on but the average Joe does not. Aren’t we overlooking the power of the media and being a little too optimistic even though we know the real deal? Seems that in the short term, the market will rally but when earnings start missing (as a result of people NOT spending) then we could be in for a real recession! Its all in the hands of the prime time media IMHO!

    Respectfully,

    DJ.

  2. Agreed that the media is a factor in many of my posts, and may have already caused some reduction in spending.

    But I do think that as incomes continue to grow and employment remains high spending will be reasonable, and exports will pick up the slack

  3. Thanks for the direction. I totally Agree! Media caused reduction in spending will be temporary. The weak dollar will continue to drive exports. I don’t expect the Fed to raise rates until they replace the chief. If it plays out like this 2008 could turn out to be pretty good year afterall.

    Thank You!

  4. Well sure, however If they did an about face too soon then they will be admitting failure! Then again, the Fed has made a lot of dumb moves it seems…so who knows!!!

    If I was the Fed chief, they would have to fire me before I admitted I was stupid and caused businesses to close, loss of retirement savings, homes lost and deaths to starvation & medical affordability. I would never want that on my conscious.

    A conspiracy theorists aspect; maybe there are reasons beyond our comprehension and the fed is decoding some secret economic data?

    Greenspan paved the way for the problems we have today and Bernanke is the epitome of the tail waging the dog. In the long run it won’t matter because our Fed cannot control the world economy just yet!

    Bubble economies will continue to exist but a Fed created bubble exacerbates and prolongs the crisis! We should rein in the Feds power.

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