FROM OI:>>Little did we know what the Greenspan clan was planning - a 50
basis point cut that was the result of a unanimous 12-0 vote of
the FOMC. Sounds pretty bullish for the markets, huh? Not so
fast. The FOMC statement that accompanied the reduction stated
that, "incoming economic data have tended to confirm that greater
uncertainty, in part attributable to heightened geopolitical
risks, is currently inhibiting spending, production, and
employment." The committee basically telegraphed serious concern
about what they called a "soft spot" in our economy. They blamed
heightened geopolitical risks (read: Iraq), which certainly have
had some effect on companies reluctant to do business in that
part of the globe, as well as concerns over fuel costs. However,
the rough employment picture seems more based on a lack of
business spending in the economy, which has also led to
contraction in the manufacturing sector. Now that the bullets
are out of the gun, it will be interesting to see how the fed
deals with future economic weakness. While it is possible to
lower rates further than the current 1.25%, there is not much
room to move before money essentially becomes free, when taking
into account the inflation rate. The fed addressed that concern
by stating, "Inflation and inflation expectations remain well
contained." The committee also said it believed that the risks
are balanced for now, in regard to long-term goals of price
stability and economic growth. This indicates they are not
planning any more changes in the near term.<<<
AI
