After a widely anticipated meeting by the Federal Reserve Board on December 11th  did, in fact, reduce interest rates. Lower the Fed Funds rates by 25 Basis points to 4.25% and the Discount rate as well 4 1/4 %. Until the Fed Chairman Ben Bernanke gave a speech in late November, the likelihood of any interest rates reduction seemed  bleak especially based on  the strong position expressed after the October 31^st meeting that no further rate cuts would be forthcoming this year. However, those comments make in November, hinted at a softening in position thereby making the outcome the  December 11th meeting difficult to call. However, by December 11th, the vast majority of  economists expected a minimum 25 basis point cut in rates, with some economists predicting as much as 50%, yet despite the stock market anticipation, could best be characterized as neither bullish nor bearish but rather sheepish .Following the Fed's action, the stock market traded higher, possibly luring out buyers to cover short positions and/or encouraging new investment flow. After a discouraging week of trading, the Dow Jones Industrial Average ultimately closed the week at 13,339.85 (December 14^th, 2007),  down 285.73 points lower the previous 13,625.58  week (December 7, 2007). 

Minutes from the December 11th meeting suggest that the Fed seems to have adopted a more flexible policy going into the new year. The Board acknowledges that economic growth is slowing, reflecting the intensification of the housing correction, some softening in business and consumer spending and strains in financial markets have increased remain.  This Fed seems to verbalize as much as it acts, accordingly, caveats regarding policy actions in 2008, including presumably even those taken at  next meeting on January 29nt and 30th would be evaluated based on the, "combined with the policy actions taken earlier, should help promote moderate growth over time." In addition, the Fed will closely monitor "elevated energy and commodity prices, among other factors, may put upward pressure on inflation.  In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully." That the Fed's long-term outlook. Remarks about short term prospects were somewhat toned down, "Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

The market is not receiving enough stimulus to believe that a bull market is at hand, instead all indications are that is struggling not to turn into a bona-fide  bear market -- and with an abundance of comments about a "recession," it is difficult to contemplate sustainable upside movement.

 The Risk Premium Differential Has Made A Modest Bullish Reversal

The financial markets were not impressed with  the Fed 25 basis point cut in both the Fed Funds and Discount this past week.  As such, the Risk Premium  movements  are virtually static. The  December 11th Fed action did nothing to spark a buying spree, hopefully more constructive action will result from the January 29th/30th meeting or the March 18th meeting.     

• The Industrial Risk Premium ended at 6.18% versus 6.05%

• The Transportation Risk Premium increased to 6.95%  from 6.67%

• The Utility Risk Premiums increased to 5.43 % compared to 5.32%

The risk differential indices for the week ended December 14^th, 2007 have reversed the bearish trend that has been in place since early October -          although this bullish reversal remains weak.  n

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For November 30th's Comment Please Click Here

For November 23rd's Comment Please Click Here

For November 16th's Comment Please Click Here.

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