Word: feds
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...Which means this downturn/pre-recession ain't over yet, which means that Alan Greenspan will be cutting interest rates again, real soon. Probably before the March 20 Fed meeting, and probably by a quarter or half a percent, but that's still the part we guess about...
...Greenspan's Wednesday testimony was a close cousin of his Senate testimony two weeks ago (the Fed itself labeled it an "update"). And not much has changed. Politicians still say stupid things in the Fed chairman's presence. The Fed is still optimistic about the economy's long-term prospects, and not much worried about inflation. And the short-term danger is still that people get so worked up about their fading 401k's and rising heating bills ("the rise in the cost of energy has drained business and household purchasing power," he said) that they turn Japanese and bury...
...think Tuesday's reports definitely increase the likelihood that Greenspan will cut rates again before the March 20 meeting, probably by 25 or 50 basis points (a quarter or half a percent). It's hard to say exactly - the Fed is still sorting through all the numbers to try and figure out where we are right now - but three weeks is too long to wait when confidence is this low. Greenspan doesn't want to look like he's behind the curve - not in the first year of a new administration, not when he didn't cut rates fast enough...
...this winter and spring should start to pay off. If oil prices come down to the mid-20s, which I think they will, then companies are going to start to return to profitability. They've been doing all the right things in terms of cutting costs, and if the Fed continues to do its role, it's going to start to show up in consumer confidence...
...Right now, consumers are very nervous. Their investments are taking a beating, there are layoffs all over the newspapers, the value of their homes is going down. But if the Fed acts, and the broader market starts to pick up a little, you'd be surprised how quickly their outlook can turn around...