Q. How Does It Feel To Be A Rate Cut? A. Anticipated, Talked
About, Hoped For,and Completely Ineffective? 11/6/2002 2:33:14 PM
Commenting on the Federal Reserve's unprecedented 11 rate cuts
in 2001, an article in the Nov. 5 Financial Times asserted, 'The
notion that rate cuts to date have had no effect is wrong. The
course of the economy in the absence of action would have been
worse…'
That statement expresses what the recent surge of speculation
about 'What the Fed Will Do' has already confirmed: the public
still believes the Fed can 'fix' the economy, and that rate cuts
are the way to do it. From there it's not a stretch to say the
public also believes rate cuts are good for stocks -- in fact,
several stories last week quoted 'expert analysts' saying as
much.
Yet history shows just the opposite.
Regarding Japan, the consensus among U.S. economists is that the
Japanese central bank 'cut rates too slowly.' Yet look at the
NASDAQ's performance during last year's aggressive policy of 11
cuts in 12 months. It's hard to tell which fell more rapidly --
rates or the stock index's overall trend.
The point is not to bash the Federal Reserve or the public for
believing in it. Some Fed officials have themselves warned that
monetary policy cannot fix the market or many of the problems
with the economy.
As the Nov. 4 Short Term Update notes, 'the point is that the
Federal Reserve does not 'control' the market…They set one
particular short-term interest rate in a bid to facilitate
credit. Period. Whether the market accepts that credit is solely
a function of psychology (social mood), and can be measured by
the Elliott wave Principle.'
Understanding this prevailing psychology makes all the
difference in getting ahead of the larger trend: Elliott wave
analysis will keep you prepared for opportunities and protected
from 'pitfalls' in BOTH directions.
(Editor's note: Wondering what IS ahead for the economy? Or if
the current rally is the start of a new bull market? Start a
risk-free subscription to The Financial Forecast Service and get
specific, precise commentary with labeled charts that address
those questions directly. Sign up for the free updates here:
http://www.elliottwaveonline.com/marketreport.htm)
About the author:
About the Author:
Robert Folsom is the author of "Market Report" weekly update as
is an in-demand market analyst for Elliott Wave International.
http://www.elliottwaveonline.com/marketreport.htm
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