Dollars and Jens
Wednesday, September 12, 2007
FOMC meeting next Tuesday
While I've opposed an inter-meeting cut, probably in part for message-sending reasons (though I'm not sure those fully justify my feelings on that), I'm not all that sold on the gradualist policy the fed has adopted, and at this point I support a 50bp cut on Tuesday. It may be entirely appropriate that the statement be somewhat hawkish — spelling out that any future further cuts would be contingent on data, and implicitly insisting that a 50bp cut now shouldn't be read to imply that more cuts are already planned. I can't say why 4.5% seems to me like it might be too low, but 4.75% doesn't; I shouldn't have the amount of precision in my feeling as I do.

Anyway, I'd like to note that the whole short end of the yield curve — out to two years and beyond — is down more than 50bp since the last meeting, and the spreads between TIPS and nominal securities are indicating lower inflation expectations than they have in a long time. Especially after the employment report, it's hard for me to imagine a funds target of 4.75% leading to unwelcome inflationary pressure in the next 18 months — whether the cut is needed to prevent a recession or not.

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