The Death of 1,000 Cuts

The Fed cuts, but not enough.

The Market promptly gives back the gains it had racked up in the last few trading days.

Apparently cutting by only a quarter point is evidence of the ‘strong dollar policy’ our debt servicers demand.

I don’t think the Fed had much choice in their decision.  If they cut too much, Wall Street jumps for joy as the inflation surge causes the market to jump and a small percentage of embattled subprime homeowners get to jump out of the frying pan.  At the same time, foreign holders of our debt see the writing on the wall and the death of the dollar accelerates.

If they cut too little, the only ones who are happy are those same foreign investors.

It’s obvious to me that this is another case of the Fed trying to thread the needle and cut just enough to keep everyone slightly unhappy.  We’ll see how this works.   Once we’re out of this year’s comparatively poor Christmas retail sales period, I think we’ll have very little good economic news to ring in the new year.  The tide of ARM resets won’t happen until sometime next spring, and the following wave of foreclosures won’t reach their high until some point after that.    Combine that with the expanding credit crunch (and subsequent reshuffling of global economic power) and you have a formula for a very interesting 2008 presidential election.

In the meantime, the luckless Fed finds itself in an zugzwang of sorts.  Pretty much any move will tick off someone… so which group do you decide to tick off the most?

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