Today's Baffling Fed Decision

Well, I guess the stock market didn’t much care for today's Fed decision.

Turns out the bond market outside of Treasuries didn’t like it either. Corporate bond rates went up while credit spreads widened. It’s kind of a rush to safe haven. It’s not good for economic growth.

I'm not sure the Fed can make it to their next meeting on January 31st without cutting rates. Look, all the swap spreads widened; all the corporate spreads widened; the Libor spreads widened. This is the credit clogging that Fed Vice Chair Donald Kohn talked about recently. But the Fed didn't act on it today. And that's the disappointment here, particularly with the discount rate.

The key point in the Fed statement is not the inflation reference. It's the repeated reference (three times) in a short statement of financial market strains. So what is so baffling to the market is having talked about financial strains, Bernanke & Co. didn't really act on it. It's a business as usual sort of thing.

But let’s look at the positive side. Who’s this new fella from Boston? This new Boston Fed President, Eric Rosengren? Hats off to him. He dissented. He wanted a 50-basis point shock and awe rate cut just like I did. Mr. Rosengren gets today’s medal of honor. I’m always looking for a silver lining.

Stocks may come roaring back over the next couple of days, because I think Goldilocks is still alive and well. But the Fed's statement today is baffling.