Some thoughts on the Fed....

Tuesday is the big day. The market seems split between 25 and 50 bp but it is my feeling that 25 is what is expected but 50 is what is hoped for. But what would 50bp do other then leave the Fed out to dry. Why ? Well the main problem as I see it is the Libor rates by cutting Fed Funds it does nothing to lower those rates, rather it leaves the market vunerable to inflation pressures (see oil and food prices) and the the Fed really has a problem. So what should they do? Well thank you for asking.....it seems to me that the Fed should cut the funds rate 25bp and the Discount rate 50bp and extend the duration at the discount window to 3 mth maturity. This would have an imidiate impact in the libor rates (come crashing off) as who would borrow at Libor when you could take term money at a much lower rate.

I am sure I am missing something somewhere but this seems to be the only solution for a fix. The Fed does have a problem. Clearly slowing growth (how slow is yet to be determined) a potential inflation issue (some might argue that there is already an inflation issue) and a liquidity situation that shows little signs of letting up.

Any thoughts.....Let me know.


Good Luck and Good Forex Trading.