The fed cannot keep Fed Funds higher than public market rates forever. It has to follow the market with regard to its interest rate policy, or risk creating recession.
my problem with your analysis, hawk, is that i'm doubtful that a rate cut will prevent a recession....we have a debt driven asset bubble in housing, which fed consumer spending for several years...
even with a rate cut, if consumers have tapped out the housing ATM (which i believe they have), we have rising credit card rates, which will constrain spending as well
also rate cuts, discourage *savings* and we are already at a negative savings rate....it seems to me we should be encouraging saving, not more debt creation....excessive debt creation is what brought us here to this 'dance' in the first place
additionally, the fed's mission isn't to signal short sellers in the market or further inflate bubbles....the fed has a mandate to create policy that maintains 'price stability', unfortunately, that horse is already out the barn, due to below inflation rate fed funds rates for years, those excesses which drove the housing bubble need to be wrung out of the system, not propped up by yet again opening up the printing press full tilt
jmo |
