The Whole Story of the Fed rate cut decision: When the impact of inflation growth.

Fed rate cut decision <P> whole story: When the impact of inflation growth </ P> <P> Bernanke want to try to control the market expected the Federal Reserve, but the reality seems to be controlling the market expected the Federal Reserve </ P> <P> .Lin Chunjie </ P> <P> Some analysts believe the Fed is hoping to rely on their own hands, respectively, control of inflation and maintain economic growth. .But may not catch everything </ P> <P> there is such a joke is circulating: NASA announced one morning and could be a huge meteorite hit the Earth after a few months, the Dow Jones index fell in early trading .3000, however, the stock market began a strong rebound in the afternoon, because the Fed cut rates to rescue the market. .It sounds weird, but it really is the general mentality of the current market: investors believe that, no matter what happens, the Fed will help bail them out, means that injection of liquidity. .October 31, the Fed decided to further cut interest rates by 25 basis points for the second interest rate cut within two months on the grounds that the real estate market problems may affect the economic growth prospects. .</ P> <P> rate cut has become a double-edged sword </ P> <P> the Fed said in a statement that "the recent pace of economic growth is likely to slow down" rather than September 18 of the "credit tightening may be .housing market adjustment increase, inhibit the growth of the economy. " .U.S. Commerce Department's preliminary data showed U.S. third quarter GDP growth was 3.9%, it seems this is a good figure, but it does not explain the problem, difficult days in the fourth quarter and the first quarter of next year .become more serious. .Chief Investment Officer Bill Gross Pimco, the author points out that if the Fed hope to save the overall economy, the nominal interest rate must be reduced to 3.5%, real interest rates to 1% level. .However, successive interest rate cuts will have too much cash, and then gave birth to inflation. .The Fed said in a statement, "At this rate cut, the upside risks to inflation and downside risks on the other." .However, the market's performance is that the risk of more inflation side. .Currently, the Dow Jones and S & P 500 Index are located near record highs, indicating investors are not pessimistic about the economic outlook; crude oil prices broke through $ 96; the gold price from $ 800 only one step away; the day the Fed cut rates 10-year bonds .yields also rose by 9 basis points, while the falling dollar also increased the risk of inflation. ."All the facts prove that the risk of inflation is increasing, but the Fed has cut interest rates." Although I believe the U.S. economy may be facing difficulties, P. White & Co Philip White, principal analyst was puzzled on rate cut .. .Of course, some analysts also believe that the Fed's actions have proven they are more concerned about the risks facing the economy, the statement described inflation as the Fed go with the one in the Halloween onions, just in case. .Stone & McCarthy Research Associates in the latest outlook is expected to cut interest rates and the Fed will continuously cut interest rates next year in March to 3.75%, although the agency acknowledged the Fed's statement shows all aspects of risk is balanced. .</ P> <P> with market expectations game </ P> <P> these market expectations the Federal Reserve is essential. .Market if the Fed will at any cost determined to save the economy from sliding into a depression, which would limit the Fed's regulation of space. .In this respect, the Fed seems to fall into a passive, some market participants think the market expected the Fed to cut interest rates cut for a reason. .Dallas Fed President Bob McTeer said the former branch, the market has fully expect the Fed will cut interest rates this time, if they do nothing, then the market will fall into chaos. .In McTeer view, the more neutral Fed statement only later make up a "Declaration of Independence." .The Thomson Financial's U.S. chief economist Jeoffrey Hall also believes that the strong market expectations of interest rate cuts the Fed did not dare to take risks, although Hall did not cut interest rates they think necessary. .In a few months ago Federal Reserve Chairman Ben Bernanke spoke of the importance of market expectations and that the Fed will need to try to control the market expected, but now the Fed seems to be controlled by market expectations. .Of course, Bernanke also have the opportunity, on Nov. 8 that he would hold hearings in Congress to regain control of market expectations of a chance. .However, for some investors, the Fed's position even more critical. ."The Fed is in the middle, hoping to rely on their own hands to control inflation and keep the economy were growing. But may not catch everything." White said, and if the situation out of control, the Fed will have to give up a goal. .If the Fed choose economic growth, then inflation will get out of control, the dollar faced more pressure on the asset bubble is likely to remain a longer period of time; and control inflation if the Fed choose, it will be another scene. .In fact, the rate cut announcement, the Fed did not make the future direction of monetary policy implied. .</ P> <P>.