Wednesday, October 31, 2007

Why Cut?

The financial markets are expecting at least a 25 bps interest rate cut from the Fed today.

But why?

Third quarter GDP was released today and the numbers showed the economy grew at the fastest pace since early 2006.

Consumer spending was higher than expected for the quarter.

The ADP employment numbers were higher than expected.

While housing is awful and inventory near all-time highs, I just don't see that the economy has fallen off a cliff and needs another 25-50 bps cut.

But you know those financial markets.

What they want, the Fed gives.

After all, who's more important in this country than the investment class.

UPDATE: And the 25 bps cut came. Uncle Ben really is a coward. He couldn't say no to Wall Street. He couldn't handle the pressure of saying "The data doesn't support a rate cut."

Because it doesn't. Inflation is up no matter what the Fed claims in the GDP report. Oil is at $95 a barrel. Gold is over $800 an ounce. Food prices are up. Used toilet paper is worth more than the dollar. GDP was fine last quarter. So were earnings, by and large. Sure, financials like Citigroup and Merrill took a hit, but they freaking deserved it...

Still, Ben came with another bail-out and then said "That's it! No more cuts!"


You can bet if the pressure gets tough enough from the markets, he'll cave again in December.


It is like a mother telling her spoiled kid, O.K. I'll give you another 25 bp, but really, that is it.
It's shameful, really. The data didn't support the cut at all. But Ben caved to the pressure. And he'll cave again if the pressure gets up there.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?