Tuesday Recap

Bernanke and company picked a good day to double cross the market.

The futures were pricing in a greater than 75% chance that the Fed was going to cut rates at their regularly scheduled meeting yesterday. Many were looking for a cut during the carnage on Monday. The Fed did nothing.

The market, preoccupied all day with AIG, sold off briefly after the announcement, then finished up on the day as optimism over some kind of resolution of the very grim AIG situation grew.

In the Fed statement they mentioned both the risk of slowdown and the continued risk of inflation, which is funny. The current risk of inflation in the U.S. is zippo. Unemployment is spiking, oil is down by a third. In tech land, Best Buy, Dell, Ingram Micro and Nortel have all reminded investors in the last 24 of how things continue to slow down.

My view is that this Fed wants to get back to using the Funds Rate to influence growth and inflation, not to situationally add liquidity to the financial markets. I expect that as the evidence of no inflation continue to trickle out, the Fed will cut rates.

The world is not ending but inflation isn't the problem.