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16 December 2008

Stocks Rally Ahead of Fed Decision

The Stock Market awaits the Federal Reserves decision on what it will do with interest rates. Rates are currently at 1% and investors expect the Fed to lower them to 0.5%, some expect them to go to 0.25%. Either way they are almost as low as they can go and any rate cut is not expected by itself to have much effect on the economy. The Fed has been lowering rates since September of 2007 and the economy has actually gotten worse, not better.

Of most significance will be the accompanying statement the Fed will release about the economy, labor market and the credit crisis. Also, investors will be interested in what else the Fed has up its sleeve. Recently, the Fed has used a range of innovative tools to jump start the economy with little to no positive results.

The housing starts and building permits plunged 15% to record lows in November to an annual rate of 616,000 for both areas. These were worse than economists expected.

The consumer price index fell 1.7% in November after falling 1% in October. Economists expected a drop of 1.3%.

The core rate, which excludes the things consumers use most...uh, I mean the more volatile food and energy, was flat, versus an expected rise of 0.1%.

The dollar has resumed its decline falling to an 8 week low versus the euro and is hovering near a 13 year low versus the yen.

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