Fed cuts into a double negative supply shock

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Posted by warren mosler (65.113.90.26) on 15:32:07 10/31/07

Hi, here's my initial take:

They did cut and did indicate risks 'balanced' meaning no cut at Dec meeting unless something tilts the balance. They were scared of systemic risk from not accomodating market expectations and didn't want to be in that position next time.

Inflation got a mention but seems fear of 'market functioning' if they
didn't cut was still sufficient to allow a cut, but by probably a slim
margin.

This is a very risky move by the Fed. In Fedspeak, 'adding to demand
with a rate cut in the face of the food and energy spikes and falling
dollar risks turning a relative value story into an inflation story.'

With the Saudis continuing to post ever higher prices and other
imported prices rising as well as export prices rising due to high
demand, the October cpi numbers are likely to make it obvious the Fed
has, again in Fedspeak, 'let the inflation cat out of the bag.'

Meanwhile, the short sep 08 ED position is working out, though not as
much as it may have if the Fed hadn't cut.

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Subject:	Re: Fed cuts into a double negative supply shock
Comments:	: Hi, here's my initial take: : : They did cut and did indicate risks 'balanced' meaning no cut at Dec meeting unless something tilts the balance. They were scared of systemic risk from not accomodating market expectations and didn't want to be in that position next time. : : Inflation got a mention but seems fear of 'market functioning' if they : didn't cut was still sufficient to allow a cut, but by probably a slim : margin. : : This is a very risky move by the Fed. In Fedspeak, 'adding to demand : with a rate cut in the face of the food and energy spikes and falling : dollar risks turning a relative value story into an inflation story.' : : With the Saudis continuing to post ever higher prices and other : imported prices rising as well as export prices rising due to high : demand, the October cpi numbers are likely to make it obvious the Fed : has, again in Fedspeak, 'let the inflation cat out of the bag.' : : Meanwhile, the short sep 08 ED position is working out, though not as : much as it may have if the Fed hadn't cut.
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