Flying Pink Unicorns

The fed should leave interest rates unchanged tomorrow.

There is a lot of talk in the markets that the fed will again cut interest rates tomorrow. I strongly think the fed should stand pat. The Federal Funds rate is currently at 1.5 %, so there really isn't much room to cut. I think it would be far far better for the fed to keep rates unchanged so there is room to make additional cuts if warranted, or if needed to respond to a future new crisis.

There is already a ton of monetary stimulus in the pipeline, from past interest rate cuts, and a fair bit of additional stimulus in the form of the various bail outs. The drastic drop in oil (and thus gas) prices also acts as a real economic stimulus. There is a lot of talk in Congress of another fiscal stimulus package, which I strongly favor. But the fed should hold off.

The markets, however, are nearly certain that the fed will cut rates by half a point or more. That is what I predict, but I would dissent if I had a vote on the Federal Open Market Committee.