The Fed’s next move

If I were a mainstream economist and on the FOMC (I’m not either, they are both), and world equity markets were firm going into the meeting next week with the monoline issue put to bed, I’d opt for no cut.

That would be expected to rally the $, take down gold and most other commodities, and be taken as a strong move to ‘keep expectations well anchored’ before they had a chance to elevate.

Equities might sell off initially, but be encouraged with the knowledge the Fed was keeping inflation under control, and therefore not get involved into a prolonged, rate hiking fight against inflation down the road.

Also, confidence in the economy would be conveyed, as the no cut decision would be taken as a statement from the Fed that the economy didn’t need further rate cuts.

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