“Fed cuts key rate by half a point, and markets soar,” is the top headline in today’s International Herald Tribune .
The second headline is like unto it:
“UK bank doubles bailouts”
Both headlines tell the same story...
“It’s Party Time...!”
At least that is the message that investors took away from the Fed’s actions yesterday. They ran up Dow stocks more than 300 points. “Euphoria sweeps Wall Street...” was how the IHT described it.
As anticipated in this space a long, long time ago, the Bank of Ben Bernanke has announced that it is not the Bank of Paul Volcker; it is still the Bank of Alan Greenspan. And, like its illustrious predecessor, this bank’s main concern is avoiding a Japan-like slump. That is, of the two forms of ‘flation’ we talked about yesterday, it prefers the form preceded by ‘in’ rather than that preceded by ‘de.’
According to press reports, the Fed’s Open Market Committee had little doubt that it would cut rates; the big question before it was: how much? And while we guessed that it would cut, we presumed that it would take the more cautious choice – a quarter of a point, rather than a half. That it opted for a full half a point off the fed funds rate merely reinforced the message: “Drinks on the House”. Or at least that was the gist of it.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
