3/4 Point Rate cut will have Unintended Consequences.
Posted on January 22, 2008
Filed Under Economic Crisis
It’s a tricky game the Fed has to play in assuaging market fear through the manipulation of rates - they need to show the market they take the problem seriously and will do what is needed to keep the wheels from coming of the economy, but they need to keep investors calm as well, for panic and the market don’t mix well.  While Fed Chief Bernanke certainly conveyed that he takes the problem seriously with this mornings 3/4 cut, I think he failed on the panic side of the equation.  3/4 a point is such a histroically enormous cut, particularly in light of our depreciating currency, that it is likely to make investors fear our policy makers are fleeing the theater screaming “Fire!”  All this cut says to me is that we are in much bigger trouble than anyone thought.  It certainly doesn’t motivate me to call my broker advising him to “buy buy buy”. The question now is what impact will this rate cut have on the falling dollar?  It is likely to put more pressure on the currency, which will only excacerbate those problems the Fed was trying to ameliorate.  At least we can stop worrying about what is ahead because the barrel has just tipped into the falls and there’s no turning back.Â
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Comments
One Response to “3/4 Point Rate cut will have Unintended Consequences.”
Interesting points. But what happens if they leave rates alone? Somethings gotta be done to get the economy moving. Don’t you think?