Filed under: Economic data, Housing, Federal Reserve
The vice chairman of the Fed states that there’s a great deal of debate within the body about slicing rates. Based on a speech by Donald Kohn, Reuters writes that “hints at a split between policy-makers that critics find worrisome, because it raises doubts about how far the Fed will be prepared to cut interest rates to shield the economy from a slumping housing market, increasing the odds of a recession.”
Said more directly, it is not clear whether concerns about inflation or recession will govern the actions by the Fed in the early parts of 2008.
If the Fed leans toward viewing inflation as the greater of two evils, the half point cut that investors expect later in the month might end up being only a quarter point. No one can guess what that will do to the market. It would be hard to quarrel with the fact that it could push the Dow down 250 to 500 points, at least temporarily. Sectors like housing and automotive could fall even further.
Debate at the Fed may have a modest effect on the economy, but it could be the undoing of the stock market.
Douglas A. McIntyre is an editor at 247wallst.com.
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