Fed Steps In To Calm Nerves?

Markets sure can be moody. Yesterday and today, the US Federal Reserve 'injected liquidity' into the markets to the tune of $38 billion in an effort to try and calm things down. Expectations of Federal Funds rate cuts have quickly changed, with 33% chance of a cut before the next Fed meeting in September. Last time the Fed changed rates off the scheduled meetings was in the wake of 9-11.

So the stock markets around the globe have been in a roil over all of this credit crunching. Shouldn't they be happy to see the Fed taking action? Or does the fact that they are reacting on the fly suggest to the markets that the Fed is officially acknowledging a problem? Security vs. Uncertainty. Markets hate uncertainty, and there will be a negative tone out there until it has evaporated.

While the Fed was raising rates in this last cycle - 17 consecutive 0.250% hikes over a two year period - mortgage rates often went down at each interval. This is often counter-intuitive, but if you can read between the lines it makes sense. Even though Fed rate hikes meant that the environment for interest rates was rising, the fact that the Fed was doing battle with inflation by raising over-night rates made bond investors happy, so they bought more bonds and brought long term rates lower. Security vs. Uncertainty again.

Meanwhile, check out Mr. Mad Money flipping his lid while talking about the current market conditions. Just another measurement of our current state of markets in 'panic mode'. If you are (or are not) familiar with Jim Cramer, here's a great chance to get a glimpse of the guy.