What We Wanted And What We Got
The market is acting a little schizo right now. After being down 100 or so points in the immediate aftermath of the FOMC announcement, it reversed course and at one point was up around 100 points (XLF chart).
Currently, it’s trading about where it was before the FOMC announcement. Personally, I think it should be about 100 points lower (i.e. down 50 or 60 from the open).
The reason is that I just don’t think Bernanke gave us enough. Now, I don’t care what he says as I think he’ll have to cut rates soon. But if we’re going to trade off of the announcment, this wasn’t enough.
In addition to acknowledging the ongoing turmoil in the credit markets in the paragraph on the economy, I think we needed something like – “Given the increased downside risks to growth, the Committee’s policy concerns are now equally balanced between inflation and economic growth” – in the policy paragraph. That would’ve set off a ferocious rally. As it is, it’s on the Fed’s radar but they aren’t too concerned.
The market run-up suggests an expectation of more. Hence, we should see a little selloff – say down 50 or 60 points at the end of the day. We’ll see where things close.