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As the Fed Funds futures indicated, we got a 50 basis point cut. And since this was what the market expected and had come to rally for ahead of time, we got a muted response. I wrote early this morning:
“If we do get exactly 50 basis points, we could flail around and end the day unchanged for the most part.”
The text of the Fed announcement hints that there will be more rate cuts to come:
Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
The Fed’s scramble to lower interest rates is much more than just a preoccupation with the housing market or the stock market slide or the liquidity crunch or the multi-billion dollar Societe Generale fraud or any other one variable. It is about the US economy’s inevitable slide into a recession.
With the interconnectedness of world economies, you can bet this will quickly seep into Europe and Asia. I’m already hearing from friends and family overseas that business is slow.
Here’s an updated graph from Google Trends:
Notice how the first blip coincides with the Asian “flu” correction in the spring of 2007. But now its off the charts!
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