Fasten your your seatbelts, it's going to be a bumpy ride. Tuesday's
announcement that the Federal Reserve was cutting a couple of key interest
rates by a whole half of a point, not just the quarter-point that many
economy-watchers expected, set off one heck of a party. What great news -
for the short term.
But for some of us scaredy-cats, the news set off memories of the Carter
Years and double-digit inflation. It also brought back the Dotcom Bubble in
the Clinton Era - before that roller-coaster ride dipped precipitately at
the end. How long will it be, some of us wonder, before references to the
Greenspan Put is replaced by talk of the Bernanke Bubble?
But what, us Americans worry? Happy Days Are Here Again and pass the
champagne. Who thinks about the hangover when glasses are being raised to
the Fed? Immediately the stock market took off like a Roman candle. At
closing, the Dow had jumped 336 points, or maybe over the Empire State
Building. Whoopee!
The Dow gained 2.5 percent Tuesday to close at 13,739 - the biggest one-day
jump in five years. Predictably enough, gold was up, way up, and so was the
yield on long-term (30-year) bonds. The poor and getting ever poorer dollar
was down - not good signs for those of us still concerned about inflation,
not just de-. Shades of the disastrous Carter Years, crude-oil futures
closed at a new high. Uh oh.
Sure, a great big fat interest-rate cut is a good thing, but as in
too-much-of-a. How long before the Fed decides that what the economy needs
is a whole point cut? Or several of them. Maybe it does, but why get there
all at once?
Only a month ago, the Fed was making sounds as if inflation were the big
danger to the economy. Now it's the decidedly lesser evil compared to panic
on the world's stock exchanges. What a difference a tremor in the subprime
housing market can make. The 180-degree change of course was dramatic. To
quote the Wall Street Journal's hard-breathing, front-page account of the
mood swing Tuesday:
"In the moments before the Fed's announcement, at 2:15 EDT, a calm came over
the New York Stock Exchange as traders waited, gazing at information boards.
When the news hit, noise filled the room as surprised traders scurried
across the floor seeking to close bearish positions and bet on stock gains."
Continued... |