Please, Oh Please

Don't let the Fed cut rates again:

U.S. stocks coasted higher Wednesday, with investors cheered by thoughts the day could bring another interest-rate reduction by the Federal Reserve.

With a decision due at 2:15 p.m. Eastern, consensus estimates say the central bank will cap a two-day Federal Open Market Committee gathering by trimming rates a quarter-point to 4.5%, following up on a 50-point cut in September.

"Today all eyes are on the FOMC. We expect [a] 25 basis point cut with further action likely as the economy slips through quarter two of 2008," said Tom Di Galoma, head of U.S. Treasury trading at Jefferies & Co. Inc.

Others agreed. "I think the market will get the treat" of the rate cut, said John Derrick of U.S. Global Investors.

This is one of the most colossally stupid things I've ever heard. They've been good, little financial worker bees, so they deserve a big ole rate cut just in time to get their big fat bonuses!!!! Yeah!!!

No. The market is insane if it thinks the Fed will cut rates, and the Fed may very well be insane if it lets itself be held captive to the market's - and all its participants - desire for a fatter paycheck.

Considering what actual inflation - food and energy, not this inflation ex-inflation bullshit analysts have been trying to push off on us - has been doing, the Fed should do its job and try to rein in inflation, not let it run wild.

Furthermore, there is another very tangible downside to cutting rates - further accelerating the dollar's decline. That means lots of pain for everyone. Keep reading the Big Picture post for more or see this Reuters article:

OPEC is likely to discuss creating a basket of currencies for oil pricing at its next summit due to the steady decline in the dollar, Venezuela's Energy Minister Rafael Ramirez said on Friday.

"The need to establish a basket of currencies ... will probably be a point of discussion in the next OPEC summit," Ramirez told reporters during an evening event in the presidential palace.

"The dollar as a benchmark currency has been weakening quite a lot and it creates distortions in oil markets."

Lower rates means lower interest earned. If that's the case, then foreign government don't have the incentive to hold U.S. securities or U.S. dollars. People sell dollars, which causes the price of the dollar to decline, which means Americans have less purchasing power.

A weaker dollar also doesn't help oil exporting countries, who have thus far exported in dollars, or the petrodollar. Why does this matter to us? Because they're sure to switch to more reliable currencies, like the Euro, since keeping their exports denominated in dollars will cause their profits to decline. When that happens, the U.S. will need to spend more money on exchanging dollars to purchase oil, which means the price of gas will go up even further.

So, what's the Fed gonna do? Give the kids Halloween candy that will later give them cavities, or show a little responsibility?

Update: Stupid, irresponsible Fed:

The Federal Reserve cut its benchmark interest rate by a quarter point to 4.5 percent to cushion the U.S. economy from the housing recession that officials predict will extend into next year.

...

"The committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth.''

Paul Volcker needs to Schoolhouse Rock Bernanke on the 1980s. Now.