FOMC Cuts... One & Done?? (DIA, SPY, QQQQ, TLT)

Today, Bernanke & Co at the FOMC gave us their rate decision.  The FOMC has decided to the Fed Funds Rate 0.25% to 2% and the Discount Rate by 0.25% to 2.25%.

As far as we were concerned, the language, tone, and general fed-speak is now more important to us than the actual rate move.

At 1:55 PM EST today, about 20 minutes before Fed-Time, the key ETF’s for the market were as follows:

• DIAMONDS Trust (AMEX: DIA) $129.27 (+1.09; +0.85%)
• SPDRs (AMEX: SPY) $139.55 (+0.47; +0.34%)
• PowerShares QQQ (NASDAQ: QQQQ) $47.73 (+0.13; +0.27%) 
• iShares Lehman 20+ Year Treas Bond (NYSE: TLT) $92.56 (+0.11; +0.12%) 

We still believe the U.S. is in a recessionary environment despite a positive GDP number this morning, just like Warren Buffett noted this week.  The difference is that we now believe the dangers of the systematic implosion and major spreading of counterparty defaults have passed.

Here were some of the FOMC comments and some of our conjecture:

The Federal Open Market Committee voted 8-2 to cut the fed funds rateat which banks lend money to each other by 0.25% to 2%.  Fisher &Plosser were the NO votes.  This marks the lowest fed Funds are sinceNovember 2004.

Economic activity remains weak… with subdued spending and furthersoftening in labor markets…. Markets remain under considerablestress…. substantial easing of monetary policy to date… should helpto promote moderate growth over time… inflation uncertainty remainshigh and that it will monitor inflation closely.

The FOMC looks like it did drop prior references to downside growthrisks, although it said it would act as need to promote growth…

As far as whether or not this is hawkish enough to bail out the dollar and to tank oil prices, we aren’t yet seeing that.

Jon C. Ogg
April 30, 2008