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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Robert Douglas who wrote (2993)	2/10/2001 7:27:54 PM
From: Zeev Hed	Read Replies (2) of 3536

Douglas, I think that the danger of an immediate cut to what you think might be an appropriate non restrictive rate will reduce the psychological power of these rate cuts. If the rates were cut at once and the economy somehow refused to increase borrowing (Consumers and corporations), the fed would be pushing on a string with little left six months hence. Furthermore, I think that AG is fearful of a financial "accident" that might require real fast loosening on its own, and if the rates are already "rational" he may have to go too low. By giving the market a clear signal of its intentions to be accommodative, but not actually be, he leaves sufficient room for additional "psychological" boosts in the future. You got to remember that his main concern right now is not the actual volume of GDP, but preventing loss of consumer confidence that would impact GDP much further than necessary to absorb excess inventories. Spread the cuts over time, and the anticipation of these cuts, should reverse the direction of consumer and industry's confidence. As they say, it is a "con" game (g). Zeev

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