The stranger is puzzled. There's no question the Fed believes the economy is pulling back. It's been saying as much for months, though other factors, principally low jobless rates and high energy prices, persuaded it to remain on guard against general price instability. Then, on Jan. 3, spurred by signs of flagging manufacturing activity, the Fed mounted a surprise attack. As a result, companies reporting bad numbers, past or future, are emerging with far less damage than they would have received in previous months.
Trouble is, investors can sometimes be misguided in their assumptions.
The slowdown might not be as drastic or as enduring as it seems, and so the Fed might be less keen to cut rates going forward. Several recent economic reports have lent credence to investor confidence that the Fed will keep loosening its grip on the money supply. Last Wednesday, December's consumer price index, a major gauge of inflation, came in, as expected, at a tame 0.2 percent. That, he said, should be enough to keep the Fed on easing mode. Measured in the old way, the drop would have been a tamer dip of 0.3 percent.