The Cut in the Fed funds rate immediately showed up in the Markets. Speculators and Hedge funds swung out of the Commodities markets, and into the base materials markets. Oil bounced to $82/barrel, and will stay there. Construction materials will be going up. The rise in industrial metals is far more important than the rise in Precious metals. The Fed made the ridiculous Cut under pressure from the financial markets, before getting rid of the Profits balloon; giving a green light to disastrous practices which brought on the Mortgage Crisis in the first place. I predict a Year-over-Year Inflation rate in excess of 5% by the end of the year.
I think that Robert Lucas agrees with me in that the Fed made a wrong Move. Economic conditions are especially dangerous at this time for the Fed to undertake additional policies over and above suppression of Inflation. Agricultural inputs are being misdirected. The Mortgage Crisis proves that the American Consumer is on shaky ground, overextended and highly responsive to Price shocks. Cactus at Angry Bear may have an insight with this Post. The fact stands that We can only expect a sharp increase in overall Prices, while there is no extendable Consumption Credit out there.
John Whitehead presents the potentially worst aspect of the Fed funds rate with his prediction on the direction of Oil pricing. Oil supplies are dwindling, and the functional end-result of the Fed funds rate Cut will be to pump Money into this market. My median forecast for light sweet Crude, with the advent of the Cut, is not $68/barrel, but around $74/barrel. This will produce a rapid advance in Oil prices in the New Year Contract season. Those not in the know must realize this does not bode well for American Consumers of Oil. I am not happy today! lgl
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