Tuesday, January 29, 2008

Big Day a-comin'

Every time the market sees a Fed announcement coming, it gets antsy, if not downright crazy. Sometimes the market soars in anticipation. Sometimes, the market fears the rationale behind the announcement.

Tomorrow's announcement will probably be a make-it or break-it moment for Bernake. The economy is on the rocks. The dollar is at all-time lows. Oil is still in the high $80s. Numerous companies have announced mixed earnings this week. And, not to forget, last week's heavy-handed Fed emergency 75 bps rate cut.

So is the economy really ready for the market anticipated 25 bps cut?

I think it is a terrible idea. We have now cut too much, and inflation should be a huge worry. The worsening situation for the dollar should far outweigh any benefits of a temporary economic stimulus, such as a rate cut.

The unemployment rate is still relatively low at 5%. The market appears to have bottomed or bottoming. At this point, the Fed should leave things along and let bottom side of the business cycle play out.

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