Fed To Pull Out All Stops

The Federal Reserve is to take more action today.

The Federal Reserve is expected to continue pulling out all the stops to combat the two-headed threat of a financial-market meltdown and a U.S. recession by slashing interest rates later Tuesday, Fed watchers said.

Investors and Fed watchers are centering their expectations on a one-percentage-point rate cut, to 2%.

The impact will be to further expand the money supply and encourage borrowing, while at the same time fueling more inflation and devaluing the dollar more on the open market. Oil will get more expensive too, due to the dropping dollar.

Very clearly the Fed has made it clear that they are not going to stand idly by and watch the macroeconomy crumble and fall. Some shaking out in the markets, sure, but massive train wrecks, no.

Look for the results of this to be much more regulatory oversight of the mortgage industry and in the trading of mortgage-backed securities.

One conclusion that can be fairly drawn of this shakeout is that there were some risks to this business activity that were not being accurately priced into the market.