The Fed Decision: First rule is do no harm!

Posted Apr 29th 2009 4:30PM by Douglas S. Roberts
Filed under: Good news, Economic Data, Federal Reserve, Recession, Financial Crisis

The Federal Reserve Open Market Committee (FOMC) issued its decision on interest rates. The market anxiously awaited the decision to determine if there would be any surprises like the previous decision in which the Fed announced a massive quantitative easing program.

This decision was quite different and can be summed up in two words: no change. There was virtually no change from the previous statement aside from an acknowledgment of recent economic news. In other words, it turned out to be a non-event.

What is the thinking underlying the FOMC statement? One must remember the first rule of physicians when treating a sick patient. Do no harm.

There has been some positive economic news which has led to market rally. The Fed did not want to derail this in any way. However, it also recognizes the unpredictability underlying the situation and did not in any way want to declare victory.

Therefore, it elected to make a statement that does nothing to derail the current burst of optimism. It still leaves all options open if things continue to deteriorate and if this is merely a repeat of the mid-year rally last year.

Now, the market's focus will shift back to earnings, the stress test and economic numbers. Then, we will see what the true nature of this stock market rally is.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices.

Tags: federal reserve, FederalReserve, fomc, inthenews, rally

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Reader Comments (Page 1 of 1)

4-30-2009 @ 12:34AM

mountaindelivery said...

Burst of Optimism!
If you're desperate or a gambler you invest.
Anyone with common cents is not optimistic.

4-30-2009 @ 5:38AM

al coholic said...

The Fed has used nearly all it's ammo. They are now resigned to buying trillions (the new billions) of dollars worth of bonds, and pretending that things are better now than when they held their last meeting. But who can blame then? They dare not tell the truth about how scared they really are. We'll only hear about that years from now, probably on 60 minutes. The broadcast will be in Chinese.