The Fed Throws A Hail Mary

The news yesterday of the Fed’s decision to cut the targeted fed fund rate from 0% to 0.25% sent the markets into a tizzy, with the Dow finishing up more than four percent, or 350 points.

This action alone wasn’t the cause of the market’s euphoria, as the Fed also came out with a more aggressive statement on its position to get directly involved in current market events through what it calls “quantitative easing”. Essentially, this means that the Fed will inject more money into the supply by buying up government bonds and other assets of banks – sort of what Paulson originally intended for TARP until that entity became Paulson & Co.’s personal funny money for Wall Street lap dances.

I applaud their effort even if I’m not fully convinced it will ultimately do much good. You can inject all the money in the world into the economy, but until investors and consumers are assured the worst has passed (and many aren’t) they will continue to sit on the sidelines. The Obama administration could go a long way to restoring economic confidence by injecting its proposed stimulus plan with real, impacting corporate and personal income tax reductions rather than largely symbolic public spending projects. Obama has surrounded himself with some very bright economic minds - I hope (there’s that word) they will advocate the same.

To say the Fed’s actions yesterday were gutsy would be an understatement. Paulson and Bernanke are like Butch and Sundance holed up in a one-room shack while the economy encircles them like the Bolivian army – they appear to be outgunned, and are quickly running out of ammunition.