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Fed Rate Cuts Might Be Here To Stay

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by Felix Salmon
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Nov 30 2007 12:00am EDT

Fed Rate Cuts Might be Here to Stay

Ben Bernanke speaks pretty clearly, for a Fed chairman, and what he said yesterday left few people in any doubt that he's minded to cut interest rates again at the next FOMC meeting. This is fabulous for equity markets, since the Fed concentrates on what Bernanke called "tightening in financial conditions". Basically, so long as Libor remains well above Fed funds, you can expect rate cuts no matter where the stock market might be trading. And as for inflation, well, we'll worry about that when we're not in a crisis.

Is there a limit to how often this argument can be made? Not imminently. Rates are still high enough that the Bernanke Put will exist for a while yet, even after two or three more cuts. What's more, long-term rates still show no long-term inflation worries. And credibility? Markets seem to have forgotten about that one, so maybe it's not so important any more.

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