Fed Decision

What will the Fed do? I am not about to try and answer the question. Just have some thoughts. It is almost a forgone conclusion that they will not change the rate during this meeting but what will be watched of course is the wording. The Fed is really in a difficult situation. They have to worry about this developing credit crises but at the same time they have to worry about the dollar and potential inflation. No one is talking about the dollar. You listen to bloomberg tv and all the talking heads and I have not heard the dollar mentioned once. Think the dollar does not play a factor here? If history is any indication think again. Paul Volcker talked multiple times on the Fed being forced to protect the dollar in rate decisions in his book Changing Fortunes : The World's Money and the Threat to American Leadership. (On a side note I really think is the one of the best books of all time for understanding where America has been the last 100 years and where it is going. Understanding the Bretton Woods system and how that is still affecting us today really opens up a new understanding on the American financial system on a whole another level)

Volcker admitted that he probably kept the rate too high for too long but it was because of the dollar issue. If the Fed were to come out on Tuesday and all of sudden lower rates by 25 or 50 bips I think the crises would move from the credit markets to the dollar. This of course sparks inflation. Despite Cramer's rant on Friday (if you have not seen it youtube Cramer: Bernanke, Wake Up. It is one of the funniest and saddest things I have seen in a long time as Cramer has a breakdown) I think lowering the discount rate would cause more problems over the longer term. The Fed I think is being forced to try and talk its way out of the crises. For that reason I do expect a dramatic change in wording on Tuesday. I believe that could lead to a 200+ point rally in the Dow from wherever the Dow is at the point of the press release. Should you try to trade on it? Heck no. Might as well put your money on black in Vegas. How successful the Fed is at truly talking down the crises and whether the rally sticks (if it even occurs) I do not have a clue. I am sure some of you are smarter than I and can figure it all out. I throw it in the too hard basket and focus on what companies will be around and flourishing in 3 years after all this is done and things normalize. We shall see.