Will the interest rate cut be seen as prescient salvation or impulsive band-aid in the coming months? The Fed, it seems, were swayed by Frederic Mishkin who, notes The Economist,
argued forcefully in a recent speech that central bankers can cushion the impact of falling house prices on the economy, provided they act quickly and decisively, at little cost in terms of inflation.
While the markets bounced quickly it is not certain to be sustained and much can happen in the coming months. Let’s hope for stability, though our track record is not good and I can’t help remembering that Enron hired The Smartest Guys in The Room. We shall watch markets and data in the coming weeks to see where the pressure bears (ha ha).
As always, screening should be selective. Prefer fundamentals to story.
Further reading: An essay by The Economist discussing the Fed’s policy approach.