The markets wait with great anticipation. The dollar has been relatively stable to bullish since mid-March.
My view: Yes, of course the Fed wants to stop lowering rates and bolster the US Dollar, but if you recall, they really weren't anxious to lower rates earlier this year either. Why did they? Because they felt that they had no other choice. They felt that they needed to act and act decisively to avoid a potentially humongous recession. As you may recall, the markets were crumbling like a huge rockslide in the Rockies. Whenever there is stagflation, the Fed generally favors fighting the more problematic issue, and whenever there is an election year, they generally lean more towards fighting recession. Why? In large part because whenever there has been a recession during an election year, the party in power has generally lost. There is a vested interest in fighting a recession. However, when the markets appear to stabilize, there again is an emphasis on fighting inflation, particularly now, when we have double digit inflation rates for energy and food. But the key question is, Can the Fed take a respite from fighting the recession? Will the markets tank without their "Fed fix?" And if they do tank, what comes next? Would Bernanke let the markets fall or would he prepare them for the next infusion of good times?
Stay tuned.
