Commentary and Overnight Trading
With Tuesday's big news, there's a bit more to today's commentary. The big question for today will be when and if the markets start to look seriously at the real question marks raised by yesterday's Fed rate reduction. Here are some specific points to consider:
- The rate was essentially cut to zero and that move was unanimous. The inflation hawks saw something serious enough that they agreed to a zero rate.
- The move was essentially a ratification of what the market was already doing. While a floating fed funds rate might be a good thing for long run policy, the fact that the Fed was bullied into it by circumstances represents a dangerous lack of control.
- A range instead of a rate target. I'm reading this as "Our target is really zero. We don't want to say zero yet, because we want somewhere else to go." Both halves of that are bad signs.
- An alternate reading of the range thing is "We'd just like to be able to get enough control to hold it in a quarter point range." Bad as my interpretation is, that's even worse.
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