Understanding The Fed Rate Cut

Yesterday the Fed cut interest rates 0.5%.
Not only is this the first rate cut in 4 years, it is a big cut.

It has sparked a rally which in turn will trigger a bull run by virtue of a short squeeze. So watch the next 4 weeks for a big rally.

So why the cut now?

All is not well on the horizon. I've mentioned before my belief that a recession is inevitable in 6 months, and now it seems that the Fed thinks the recession will hit hard.

That's the need part. The ability was provided by softening inflation. Which seems strange to say.
* Commodity prices flat in non-dollar terms - Yes, commodity prices are up substantially, but a lot of that comes from the 10%+ drop in dollar value.
* The Fed ignores oil and food, commodities that are rising in price. The Ethanol boondoggle has made wheat and corn prices surge, for example.
* Near term likelihood of falling rent prices
* Labor price pressures moderating - Workers are struggling in Detroit, atthe airlines, and on construction sites.

Dropping interest rates will tend to puff up inflation, but the Fed is counting on staying ~2% thanks to some softening inflation and falling demand.

In the short term, the rate cut will have the usual unintended consequences. Shorties will get hurt, for example, and that will push the market up more. The impact on the dollar is unclear, but there will be one.

In the long term, however, we are now at the end of the business cycle. The US economy will be weakening.