OT re Fed cuts:
The only way we get a 1/2% cut between regular meetings, is if we get some "exogenous shock", or a situation like in October 1998, and the markets are tanking. Otherwise, we get 1/4% at the next regular meeting, maybe one more 1/4% after that, and then the Fed is done.
Fed cuts have their maximum effect on the economy 18 months out. Everyone uses the "6 month lagtime" figure, but that's when rate changes begin (just begin) to have an effect. So, assuming the mid-point of this rate-lowering period was in about April 2001, that means the maximum effect of the 2001 cuts won't be felt till October 2002. And, right now, what we are (still) feeling is the effect of the rate increases in 2000.
And, just as the Fed overreacted in 2000 (raising rates too much), there is a real danger that they are currently overreacting in the other direction (lowering too much). If inflation gets over 4%, the Fed will be raising rates in 2002, and I'll be exiting most of my long positions in stocks, until after the recession. |
