The vice chairman of the Fed says that there is a great deal of debate within the body about cutting rates. Based on a speech by Donald Kohn, Reuters writes that "hints at a split between policy-makers that critics find worrisome, because it raises doubts about how far the Fed will be prepared to cut interest rates to shield the economy from a slumping housing market, increasing the odds of a recession."
Stated more directly, it is not clear whether concerns about inflation or recession will govern the actions by the Fed in the early parts of 2008.
If the Fed leans toward viewing inflation as the greater of two evils, the half point cut that investors expect later in the month may end up being only a quarter point. No one can guess what that will do to the market. It would be hard to quarrel with the fact that it could push the Dow down 250 to 500 points, at least temporarily. Sectors like housing and automotive could fall even further.
Debate at the Fed may have a modest effect on the economy, but it could be the undoing of the stock market.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
1-06-2008 @ 7:48PM
Allan said...
This country needs a recession to get most of the the speculation out of the stock and commodity markets. As far as real estate is concerned prices are still much to high on the East and West coasts. We've been running so many deficits (some that are not on the books) that it's time to face the music.
Lowering interest rates simply punishes savers and the last thing this country needs is even a lower savings rate.
1-07-2008 @ 6:54AM
al coholic said...
Savings? What savings? The stock market is the savings bank these days. The people who still actually use savings wouldn't move it even if the savings rate were 1%.
The Fed has to cut rates in spite of inflation (which is already high but we won't admit it) in order to bail out the massive high interest housing debt which, for the moment is a more important issue, and allow all credit card junkies to pay down their debt with cheap dollars.