The Department of Labor released its reading for initial jobless claims earlier today which matched its third lowest year-to-date reading of 298,000 and it was the third decrease in the past four weeks which signals that the labor market is stronger then most economists expected.

The weak August payroll data gave the Fed its final push to lower rates last week and as more data becomes available after the rate cut the more evident it is that the Fed overreacted and that the aggressive 50 basis point rate cut was neither necessary nor a smart economic move.

It is also evident that Ben Bernanke is not capable of the position he currently holds and should be replaced by a competent candidate as soon as possible as to prevent further economic damage.

After the aggressive rate-cut commodity prices have pushed into new record territory, both hard and soft commodities, which are likely to impact inflation in the future, the dollar fell to multi-year or all-time lows against a basket of global currencies which will likely increase the trade imbalances, the labor market remains tight and could pressure wage inflation, mortgages are likely to increase as the 30-year bond yield has not moved and remains above the Fed Funds Rate and is likely to pressure mortgage rates upwards which will continue to hurt the housing market and the credit crisis, which was caused by extremely low interest rates for an extended period of time, will likely continue to unfold and have a deeper economic impact.

Problems in the housing market spread from sub-prime to selected areas of the prime market and the credit crisis seem yet to completely unfold as car loan deficiencies are on the rise and add to the deficiencies in other sectors of the credit markets.

Investors pushed equities higher in hope of more weak economic data which would give the Fed more reason to cut rates but most investors should be aware of the fact that an economy as big as the U.S. economy will take time to recover and won’t do so after a Fed rate cut. It usually takes between 6 - 12 months for an adjustment to the Fed Funds Rate to work its way through the economic pipeline.

The current slowdown in economic activity should be expected to continue and likely accelerate next year until it matures into a recession; it will take time for the economy to work its way out of a recession.

The current expectations of many investors that cheer weak economic data with the hope of continued rate cuts by the Fed seem rather idiotic in regards to the entire economic landscape.

What do you prefer?

Do you prefer a Federal Reserve that keeps interest rates on hold or hikes interest rates in order to combat inflation and inflationary expectations due to a booming economy?

Or

Do you prefer a Federal Reserve that lowers rates due to a decelerating economy with increased chances of a recession?

Indeed - the impression given is that the Fed and interest rates in general have offered far too much power to the investment markets (equities & property, etc), leading to a serious imbalance with regards to whom economic regulations must protect - the consumer interest or the investor interest.

I would have thought that the massive trade debt and low dollar value would have been serious concerns for the Fed - but neither Greenspan nor now Bernanke seem particularly concerned with these in the long term.

2c.

Yes, I thought that the dollar and the huge twin deficits would be more of a concern to the Fed but it seems as they just ignore it.

The aggressive rate-cut comes just days after Bernanke himself said that it is important to tackel global trade imbalances... just another example of the inability of 'Big-Ben' to lead the Fed. It's not the first time he flip-flopped and I am afraid it won't be the last time.

Heh, I think the Fed's approach to these is to just hope something happens to reverse them - I think with the existing cut there was a suggestion that lower dollar value will mean purchases are more expensive, and therefore work in a negative feedback loop to reduce the deficit. But - I just can't see that happening - not in the short term. Maybe if they had an excuse to save instead of spend, but lowering the rates plays into the arms of consumer spending and continued bad credit. A half percentile cut could even exaggerate the problems by allowing credit problems to continue longer than they should.

2c.

Yes, right they 'hope' and that is not what the Fed is supposed to do.

I agree that the rate cut discourages consumers to save but could give a boost to consumer spending (although it doesn't seem that way at the moment but it will take time for the rate cuts to work through the economy) and could increase bad credit and/or add to the already high debt-load of the consumer.

I think low interets rates were the cause for the problems and that the rate-cut and any future rate-cut will increase but delay the problem.

Time will tell!