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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 670.97

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Nov 7 4:00 PM EST

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To: Haim R. Branisteanu who wrote (64818)	12/20/2000 7:35:05 PM
From: Casaubon	Read Replies (1) of 99985

If oil acts a tax, then lower oil costs are equivalent to a tax cut. Tax cuts are construed as primer for economic growth which is potentially inflationary (at least it has been bantored about that the tax cuts Bush might enact could rub the Fed to refrain from lowering interest rates so as to not overly stimulate the economy and thereby reignite inflation). I think that 10%to 15% lower energy prices result in about 0.5% lower inflation from current levels, which will warrant at least 0.5% interest cut. So, why should lower oil warrant interest rate reductions (if they are to be equated with taxes, as lower taxes would potentially dissuade the Fed from lowering interest rates, as per the logic above)? And, is not the Fed looking for lower inflation? By your reasoning, it seems to me, if we were to have lower inflation via a reduction in oil prices the Fed would not need to lower interest rates.

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