Rather than talking up the economy, Fed officials put their rate policy where their gut feelings are.
Since January, the Greenspan Fed has been churning out crisp new US dollars with unprecedented enthusiasm. In the space of less than seven months, the central bank trimmed its benchmark overnight lending rate as aggressively as any Fed has in two decades.
But by going just 25 basis points and saying little in its statement to suggest it's worried about a recession, the Fed provided an unexpected lift to Wall Street and, possibly, Main Street.
The effect was the mirror image of 1998, when the Fed's actions betrayed fear among monetary policy makers. Back then, the Fed's moves had an air of panic about them and everybody wondered what policy makers knew that the markets didn't. last week's action, by contrast, communicated a sense that the central bank is on top of things and all is well in the world's biggest economy.
True or not, stock investors came away with that impression.
Investors bought shares that have walked in place in recent weeks.
The dollar also held up surprisingly well at a time when US short-term rates are sliding. And bonds are taking the Fed's hint that the economy may not be as weak as many analysts think. The yield on the 10-year note surged to 5.36 percent from 5.11 percent on the day before the Fed's rate cut.
The two-year note, the Treasury coupon that's most sensitive to overnight rates set by the Fed, jumped to 4.23 percent from 3.89 percent just three days before last week's rate move.
RSS