Market Falls Based on Inflation News

Ok, so there was a lot of news that pushed the market lower today, when it should have rebounded to some extent from the knee-jerk reaction to the ISM report yesterday.

Those included:

Merrill Lynch possible downgrade by Standard & Poor's because of their involvement in the sub-prime mess. To me, this is overdone also. Merrill has already written off billions of dollars and have changed their CEO. That new CEO (John Thain) will write down even more in billions trying to clean out the old guard.

Goldman Sachs downgraded GM & Ford, citing consumer spending slowdown. Like that is a surprise. Car sales have lagged for the last few years based on the change of consumer wants (no SUV and more high MPG cars) and a move by the companies away from high incentitives.

But to me, the big one was Mr. Plosser's speech on the economy. He mentions his concerns that inflation is not going to moderate even in the face of a slowing economy.

This is big. The market took this that the Fed won't be cutting rates until at least March. Boy, it breaks my heart to disappoint the market like that. 1.25% in two week wasn't good enough. Bill Gross from Pimco stated that his expectation for the Fed rate to hit 2.5% from it's current 3%. I still believe that it will not go below 2%.

Inflation is here to stay. This will keep the Fed bankers on their toes, even more than a slowing economy. Slowdowns are natural and a necessary part of every open economy and it is about time that the Fed and the rest of our government take a honest look and realize that all growth all the time is not necessarily the best for the future. There is always a price to pay when the Fed starts dropping rates and it is always inflation.