Fed Cut Meets Markets Expectations

The FOMC did just what investors predicted by cutting the target rate another 50 basis points. 

The FOMC’s statement included the expectation for inflation to moderate in coming months, noting that the government’s recent actions have improved credit conditions, but “intensification of financial market turmoil” is likely to exert additional spending restraint as downside risks to growth remain.  No word on what those risks are.

The FOMC went on to say that business spending and industrial output have weakened and slower foreign economies will hurt prospects for U.S. exports.

Although the rate cut was what most people wanted (and received via a unanimous vote), is this really good news?

The Fed’s statement was pretty negative and vague, offering no details on the remaining risk and no timeline for any improvement.  I believe a cut was in order, but I think people really need to remember why rate cuts occur: to stimulate growth.  We have seen several creative attempts at stimulating growth and another rate cut is just evidence that the previous measures are not working (at least not yet). 

Even though the market typically jumps quickly on news of a substantial rate cut like this, it takes awhile for the effects of a rate cut to be measured.  This time the jump came yesterday.

With the target rate now sitting at 1.00 percent, I think we have officially exhausted our rate cutting options.  Maybe the rest of the world should follow our lead?  Our overseas counterparts have a long way to go…Click here  for Asian rate moves.