Fed rolls out Plan B... and it doesn't work
Since the lazy rate cut didn't work, the Fed went to plan B the next day. The world's Central Banks flooded the markets with cash to encourage lending.
The market knee jerked but top rate cut evangelist Jim Cramer among others says plan B is bogus (if it were for real, why would bank stocks drop?) and the traders agreed, dropping the market back to where it started.
Plan C coming soon...
The coordinated actions with Europe's top central banks is a tacit admission by the Federal Reserve that lowering the federal funds rate, as was done Tuesday, hasn't accomplished enough to unclog credit markets that have frozen in fear over subprime mortgages and other securities that have been badly mispriced.
The Fed is pushing liquidity into the system, rather than having banks demand it. It supplies extra liquidity at whatever price the market deems, rather than setting an interest rate first and letting the amount of the loans be determined by demand from banks.
The market knee jerked but top rate cut evangelist Jim Cramer among others says plan B is bogus (if it were for real, why would bank stocks drop?) and the traders agreed, dropping the market back to where it started.
Plan C coming soon...
Bigger rate cuts will probably be needed in the next couple of quarters, as well as more daring plans than Plan B; a two Term Auctions in December and two in January for $20 billion each in funds lended to banks. $24 billioin more infused into Europe. This isn't enough to have a meaningful impact or to create growth, however on the positive side, at least we shouldn't see inflationary consequences as a result. A prudent first step, more to follow. . .
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