Wednesday, April 30, 2008

FOMC Day-- Wheeeeeeeee!

Traders and active investors know today as "FOMC Day" meaning the day the Federal Reserve Open Market Committee reveals their new target for interest rates. We'll get that announcement around 2:15PM EDT. For quite a while now around our shop we've been hoping for an end to the current loose money cycle. The fed needs to stop reducing rates, although it's likely they'll make one more quarter point drop today. In the statement with today's announcement we hope they'll firmly signal that they recognize the roaring inflation this loose money is causing and signal that they'll be tightening soon. Our fearless prediction is that the dollar will head up once again when currency traders are certain that a bet against the dollar is a bet that "fights the Fed." Not even billionaire financier to the left, George Soros, wants to go up against the federal reserve action. A rising dollar will cause a drop in the price of oil and other commodities. The brilliant Brian Wesbury writes about the situation far better than we ever could in WSJ this morning.

By the way, the preliminary Q1 GDP numbers came out this morning showing growth of 0.6%. The technical definition of a recession is two consecutive quarters of growth at 0 or lower. The next time you hear a media chinwagger pontificating or a politician wailing about this current, horrible, disastrous "recession" it would be smart to note that we're yet to have even one negative quarter let alone two consecutive. If the media had ever correctly reported on the tremendous economic boom we were in from October 2002 to October 2007, the public would be able to understand the current situation is a slowdown from that prolonged, hot growth. But then the media wouldn't be Democrat Party handmaidens if they did that, would they?
UPDATE: The FOMC lowered the interest rate target by a quarter point as predicted. The statement is, as usual, opaque. Equity markets had a low volume rally through the day and they haven't given that up in the first 15 minutes post announcement. We'll get a better read in the final hour of trading per usual. My reading of the statement is that 2% will almost certainly be as low as the fed funds rate will go. The next meeting isn't until June so it's a pretty safe bet that 2% will reign for that long. Oil is down about $6/bbl this week by the way. Subject to change of course.
UPDATE2: The final hour saw the day's rally sold off. General consensus-- fed shows insufficient concern about the inflation wolf standing on the porch licking its chops. However, once it all gets worked through the collective brain tonight we could see a different direction in tomorrow's equity market. As the stock market sold off some money moved back into crude oil.