Benny B Jumps Through "The Window"

Yesterday, I suggested that if the Fed deemed it warranted to
cut the FFR%, They should give it a good go. So, we got 50 bp
on both the FFR% and the DR%. 'Twas the uncertainty of it all
that got them. "The Window" of course was the moderation of
short term inflation stemming heavily from a weaker gasoline
price. Bernanke and the Gang also departed again from the
formulaic approach that had governed policy for many years.

The problem as set out yesterday, was that there may be
inadequate liquidity in the system to fuel economic expansion.
Federal Reserve Bank Credit -- the raw material of the basic
money supply -- has grown a paltry 0.8% this year as the Fed
"leaned against the wind" to counter rapid credit growth.
Credit driven liquidity came to a screeching halt in August,
and since the Fed cannot be sure when the system will fully
unlock, It cut rates and may add monetary liquidity more
rapidly to shore up the reserve base of the banking system.
As I pointed out at the end of 2006, the Fed would wait as
long as it could before refueling, and the rate cuts say the
time is nigh.

The process of liquidity restoration sufficient to restore
stronger positive momentum to the real economy may happen
quickly, but could easily take up to six months. More on
all of this in the days ahead.