Blah Blah Blah… What does it all mean?
The Fed cut rats by a quarter point. Am I suppose to be excited? Does it really matter? What does it all mean?
Obviously, we weren’t doing as well as many might of thought we were. There were even some rumors, before all the bad reports, that the Fed might consider raising rates (it has got to happen some time).
To me this just makes everything much harder, than it might already be? For some more insights, here are some great articles that can help us figure things out (click on source for full story):
NY Times: “The Fed’s action, lowering short-term rates to 2 percent from 2.25 percent, followed new indications that the American economy remained fragile, expanding by 0.6 percent on an annualized basis in the first quarter, not an overall downturn that would have indicated a full recession had begun.”
BloggingStocks: “As we’ve seen the last few weeks, the market has been on a steady upward trend. Being forward looking, if investors believe the measure taken by the Fed so far and in the future will succeed, we may yet see this trend continue.”
CNN Money: “They haven’t closed the door to further cuts, but they’ve shut it part way,” said Mark Zandi, chief economist for Moody’s Economy.com “They’re saying they believe they’ve done enough.”
MarketWatch: “This report should send the bulls to the barn and bring the bears out into the berry patch,” said James Williams, an economist at WTRG Economics, an energy research firm.”
Investing Adventures: “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”
TheStreet: “The central bank has now lowered its federal funds rate by 325 basis points since the outbreak of the credit crisis last summer. The Fed’s actions have been the subject of intense debate as the economy has continued to show signs of a slowdown amid rising signs of inflation, especially in food and energy prices.”
image source – usnews.com
I have to say that as far as I have felt it, the Fed simply adds more unpredictability to and already bi-polar market. More than anything, I think the Fed is pumping in volatility and instability to a market that is trying to find its way in one direction or another.
That being said, if the Fed is intentionally trying to create inflation then they are succeeding. While this sounds like a complaint, I don’t mean it to be. By increasing inflation the fed can force people to take pay cuts without actually having to take a numerical paycut, which results in workers walking out. So in one sense, the fed may be trying to give employers a break by using inflation to reduce overall salaries. Similarly, inflation can allow home owners to walk away without a numerical loss, while accepting an actual loss accounting for inflation.
However, I’m in a quandry as to whether the Fed’s place, as a private bank, is to control the economy or protect the dollar.
I feel your confusion.