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With the possibility of a recession looming on the horizon and the panic that appears to have stricken Wall Street, the Federal Reserve has determined the best way to battle the trouble is with a series of aggressive rate cuts, including an emergency rate cut of 75 basis points. While there are indications the economy is on the edge of a possible recession, it is after all, only mid-January and we won't really be able to tell if we are in a recession until the summer. So, was the Fed thinking about he long-term health of the economy or simply attempting to calm the current unrest within the markets. If the motivation of the Fed was to reinvigorate the US economy was it really necessary to make such an aggressive emergency cut one-week before they were scheduled to meet? Another issue with such a substantial rate cut is the fact that the Fed can't continually keep cutting rates every time the markets panic. The Fed only has so much ammunition to fight economic pressures and with the emergency cut and the expectations of further rate cuts following the next meeting, it seems the Fed could be running out of ammunition long before the battle really begins.

Category(s): Random Thoughts
Posted by Jon Grupp at 08:57 PM | Permalink | Comments (0) | TrackBacks (0)