Last night I got to thinking about the Fed’s announcement today. By the way, Ben and company speak at 2:15 PM EST. And after a little what if analysis, I came to the conclusion that these guys are are in a tight spot. Think about it; the market wants Ben and company to cut rates by 25 basis points, but more importantly, they want to hear that the Fed is going to be a hawk on inflation going forward.
Now, if they cut 25 points, I believe the market is going to sell the news. The dollar will remain weak, and inflation will ramble on. Man, the prices at the pump, and at that food market are really putting pressure on the consumer.
If the fed cut’s 50 basis points, will that help the market? Sure the housing market will like that, but it may completely destroy the dollar. And with the dollar tied to oil, this may reverse it’s recent decline, and launch the cost of delivering products to consumers. It may help exports, but you can’t devalue the dollar to get us out of this predicament. The market will be stunned at first, realize the predicament and sell off.
If they don’t cut at all, then the message will be that we’ve got runaway inflation. Nobody will take that news kindly, and the market will sell off. Man, we’re in a tight spot!
Tagged as: Ben Beranke, Dollar, FOMC, Oil, Rate Cut