Investors were disappointed this afternoon after the Federal Reserve cut interest rates 25 basis points. As of now, the Dow is down 212 since the cut was announced.I think the drop means that investors were expecting a 50-basis-point cut. Furthermore, the statement reflecting ongoing concerns about inflation could mean that the Fed's cutting could be over for now.
But that's what the Fed implied the last time it cut. If the Dow falls another 500 points in the next few days, Bernanke will ride to the rescue -- announcing that it was "flexible." Unfortunately, with rates at 4.25%, there's not that much further to go before it hits bottom.
Reader Comments (Page 1 of 1)
12-11-2007 @ 3:38PM
Sheldon L said...
Another case of traders "taking their ball and going home", miffed that they did not get their call.
Traders are traders and will be back tomorrow with some other slant on things -- whether they become bearish or not is temporary.
Bernanke, was leaving himself some cutting room for next time and seems to be trying to hold back inflation by just talking it down.
12-11-2007 @ 6:44PM
michael schneider said...
There is a lot of confusion about why the market reacted so strongly but the biggest problem seems to be a confusing statement that reflected a worsening economic situation but no assurance that the situation will be improved. CNBC reported in the past few days that traders expected a 50 point cut and traders expected a 25 point cut. Many traders were hoping for a 50 point cut certainly but it seems as though the statement was the main problem-- I think the market overreacted but it has been moving up briskly in recent days. It may take a little while but the market will start anticipating another cut soon. Today wasn't helped by severe ice storms in many states that are hitting an already difficult retail environment and other negative data which commentators were saying argued for a 50 point cut. Warren Buffett's comments this morning should have been a bit reassuring (see the Billionaire Watch section- yellow label top at http://www.Barrelomoney.com) but he did allow that we could indeed have a recession.