Tuesday, January 22, 2008

Fed Statement

Here is what the Fed had to say as it cuts rates 75 basis points.

Banks like Wachovia (WB), Bank of America (BAC) are lowering their prime rates today as a results of the surprise Fed cut. Expect Citigroup (C), Wells Fargo (WFC) and others to follow if not later today, then this week.

"The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.

The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.

In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis."

In early Jan I wrote
"that "nothing cures high prices like high prices". The simple explanation of that is that as prices climb, demand decreases. As milk climbs to $5 a gallon, people buy less of it sand the price falls. As oil climbs to and then past $100 a barrel, people will decrease gas use and the use of products that are affected by the price of oil. That will slow the economy and that slowdown ought to crimp the inflation that seemed to rise in December"

Oil has eased down to $90 a barrel and looks to be heading lower. This is the reason for the outlook that inflation has eased and the flexibility for a big cut. It is a double edged sword as poor growth necessitate the rate cuts that we all love.

Recession? Just talk. We need 6 months of negative growth for one. To date we have not even had one. We are getting way ahead of ourselves with that talk... way ahead...

Todd Sullivan's- ValuePlays

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