What is up with the economy???

I am a BULL!!!

I love the Fed's action. In my mind, the Fed has two options. If it doesn't act, it is definitely a statement that economy is fine and that inflation problem is more important. However, if it does act, the fed needs to come out swinging, and thus, a 25 basis point cut makes no sense. Basically, if you are already admitting that a recession is a real possibility, then you should try to hit a homerun to fix the problem instead of a single to allow disaster creeps back in. (Don't worry, if you don't get my logic, it's okay... I get that a lot!!)

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Whether or not you agree with the Fed is irrelevant. Whether you believe this fed rate cut will cure the economy is also irrelevant. In this case, only the number matters. The three times when the Fed has cut rate by 50 basis points over the last decade, the S&P has rallied by an average of 12% (that's including the 50 points rate cut in 2001). Rate cut matters. Rate cut improve psyche even if it doesn't solve the problem. When the psyche is improved, the market will rally.

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Don't fight the fed!

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Like I have said before, I think the economy is still strong and I believe the central bank and the white house will do everything to avoid a recession in the election year. I also believe that the US economy will be benefited from the global economic growth. Most importantly, this fed rate cut might just have saved my summer of sitting around without an internship offer!!!

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Join Motely Fool and compete against other stock pickers!!!

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Comments

[martina]

I' m an italian student... your article is very clear and interesting for me! I'm doing a stage at Realesse tg and I try news on subprime crisis...
Take a look at this italian news video that talks about the US subprime mortgages crisis. This important crisis infact also involved the EU and Italy, so if you are interested, you might want to take a look at our point of view on the subject:
http://tg.realesse.com/archivio-elenco-news-tg/MUTUI%20SUBPRIME.360.html
http://tg.realesse.com/archivio-elenco-news-tg/USA%20BANCHE%20-MUTUI.416.html
http://tg.realesse.com/archivio-elenco-news-tg/FIDUCIA%20IN%20BORSA.370.html