Dollar To Be Trashed by FOMC Rate Cut?

With another FOMC meeting set for tomorrow forex traders are wondering if the dollar is to trashed once again with a rate cut? As things stand now forex market watchers are guessing that the answer to that question is yes. There is still some disagreement as to the interest rate cut guessiment. Market analysts seem to be uncertain if it will be for 0.25 or 0.50 basis points.

Should the FOMC members in their great game of attempting to manipulate interest rate markets cut the FED funds rate by 0.50 points there is a good chance that the dollar will resume its long term downtrend. Where it may stop no one knows. We are getting into uncharted territory for a number of currencies, including the Euro.

What is the Federal Open Market Committee (FOMC) and what are they supposed to do? Well, according to their own website here is the story.

“The Federal Open Market Committee (FOMC) is the monetary policy making body of the Federal Reserve System. It is responsible for formulation of a monetary policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The FOMC sets monetary policy by specifying the short-term objective for open market operations–purchases and sales of U.S. government and federal agency securities. Open market operations, the principal tool of monetary policy, affect the provision of reserves to depository institutions and, in turn, the cost and availability of money and credit in the U.S. economy. Currently, the objective is a target level for the federal funds rate (the rate that depository institutions charge on overnight sales of immediately available funds among themselves).

The FOMC also directs Federal Reserve operations in foreign currencies; such operations are coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.”

In the end the committee is a group of usually old elitist men who attempt to arrange financial affairs in the United States in favor of the power elite, errrrrrr, sorry, that is very politically incorrect, I should say for the good of the nation.

However, I have to question why they think a falling dollar is going to help the US over the long run. Sure, it helps to boost exports and helps the earnings of American companies that have extensive overseas operations, but it leads to importing inflation and makes all Americans and the nation that much poorer.

The fire-sell of American assets to foreign companies will over the long run help those companies shareholders much more than it will help America. We are losing control of our own economy.

When the biggest bank in the land, CitiGroup, has to get a firm from Dubai to inject 7.5 billion in what amounted to emergency cash into the bank you know we are headed for trouble. You can be sure that the golden rule was in play big time. The men from Dubai know what they are doing with their oil money.

Note that when a US financial institution really desperately needed the cash there were no strong objections over the transaction as was the case with the torpedoed ports management deal of a few months ago.

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