As expected, the Fed today cut the funds rate 50 basis points from 1.5% to 1.0%.
But I don’t think enough attention is being paid to the statement. The Fed appears to me to have completely sold out their concern with inflation. The helicopters are in place to drop money from the sky.
Consider the inflation paragraph:
“…. the Committee expects inflation to moderate in coming quarters to levels consistent with price stability” (FOMC Statement Oct 29).
Just 6 weeks ago the Fed was saying “inflation has been high” and “the inflation outlook remains highly uncertain” (FOMC Statement Sept 16).
Those clauses have been removed from the current statement.
Turning to the policy paragraph:
The bias is now clearly towards economic growth: “Downside risks to growth remain” (FOMC Statement Oct 29).
Six weeks ago the Fed was neutral between its concern with economic growth and inflation: “The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee” (FOMC Statement Sept 16).
Interestingly, commodities have been strong the last two days as has the Euro versus the $. The action in these markets suggests to me that these are starting to trade inversely to the dollar again.
If I’m right, this could mean a short term bottom and a nice bounce for oil, copper, etc… and the Euro.