Tuesday, September 18, 2007

Finally!


Well the Fed finally seems to be listening. The market, myself, anyone who lives in the real world have begged for this cut for many months. The Fed acted boldly after playing it close to the vest, waiting it out, then cutting 50 basis points from the Funds rate today to the cheers of many. I'm terribly relieved that they acted, and I hope they continue to move in the neighborhood of 50-100 more by the end of the year. There is no inflation threat right now, only deflation of many American assets as the demand for money increased and liquidity stalled out. I think Larry Kudlow did an excellent job of calling for the cut, some excerpts from his latest blog postbelow describe the immediate market affects:

Bernanke Gets It Right

Once in a while you get it right. One time in a row.
I talked about this in my last column,
Goldilocks 2.0.
The Bernanke Fed made a good strong move this afternoon. The stock market applauded loudly with a 250-point rise in the Dow. Essentially, the Fed followed Treasury market rates lower. The 4 percent Treasury bill rate had been urging the Fed to make this move.

By itself, this action will not heal the credit markets overnight. But it will help. Lowering the cost of money will -- over time -- raise asset values across-the-board. New cash injections at the new target rate of 4.75 percent will raise the low 2 percent growth of the monetary base in order to accommodate the banking system’s unusually high cash demands.
Adjustable rate mortgage holders will get almost immediate relief.

This is a confidence-inspiring move by the Fed. Lenders will be more apt to lend and investors will be more apt to take risks..........

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