FOMC Comes Up Short (DIA, TLT)

The FOMC did just come out and issue its discount on interest rates today.  We saw a 0.25% RATE CUT FED FUNDS and we saw a 0.25% RATE CUT ON THE DISCOUNT RATE.   That 0.25% dual cut might not be greeted with much love because many were hoping for a 0.50% cut perhaps at least on the Discount Rate.  The FOMC has noted several issues:
Slowing and intensification of housing,
the strain to financial markets has increased,
core inflation readings have improved modestly but higher energy prices could impact that,
balance of risks with a bias to inflation is gone.

Here is the page where you can access the full statement from the FOMC and compare to prior rate cuts. Here are critical developments around today:

• T. Boone Pickens was just on the tape calling for $100+ oil and the current environment to become the norm.
• 24/7 Wall St.’s own Douglas McIntyre was just noting how the FOMC decision to cut rates could take us up to 15,000 on the DJIA (only 9% away).
• Here was our coverage on the last FOMC OUTLOOK FOR 2008.
• Bond King Bill Gross of PIMCO was calling for 3 1/4% FED FUNDS.
• Goldman Sachs calls recession chances around 45%.

At 2:11 PM EST the DIAMONDS Trust (AMEX:DIA) thattracks the DJIA was up $0.37 to $137.76 and the iShares Lehman 20+ Year Treasury ETF (NYSE:TLT) was up 0.7% at $91.89.  The DIAMONDS are now down 0.4% or so.

We won’t rush for the doors nor will we get the pom-poms out for this one today, particularly as many planned FOMC meeting reactions are ultimately reversed more than once in the minutes after an FOMC announcement.

Jon C. Ogg
December 11, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.