Playing Goldilocks at the Fed

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 |  Includes: DIA, QQQ, SPY
by: John M. Mason

The financial markets gave the Federal Reserve System three choices:

  • The Fed could cut their target rate for the Federal Funds rate by one-half of a percentage point to 2.50% from 3.00%.
  • It could cut the target rate by three-quarters of a percentage point to 2.25%.
  • It could it could cut the target rate by one full percentage point to 2.00%.
  • The Federal Reserve tasted the full percentage point cut, felt that this choice was way too hot, and so did not make that choice. Next, the Fed tasted the choice of a one-half point cut and said that it was way too cool, so it did not make that choice. Finally, it tasted the choice of a three-quarter point cut and believed that it was just the right cut to make, and so on Tuesday; it made the three-quarter of a percentage point cut.

    The financial markets seemed very happy with this choice. The stock market staged a strong rally.

    A question exists: Who is in charge here? I believe that the financial markets are not convinced that they have the answer to this question yet.