What a wild change of event in just a week. At the beginning of the week we saw the Dow Jones Industrial Average below 12,800. Today, the DJIA is trading well above 13,400. And all of the rally has happened with an increase hope that the Fed will lower rates at the December 11th meeting. In fact, the markets are even putting the odds of a half-point cut at 50%, over just a quarter point reduction.
Ben Bernanke, Federal Reserve Chairman, helped this speculation a bit last night. In a prepared speach last night he said, "These developments have resulted in a further tightening in financial conditions, which has the potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors."
He also reiterated worries that surging costs of food and energy, along with the weak dollar, could raise the public's inflation expectations and erode price stability. Inflation has remained relatively tame in recent months.
But when you have statements like those and then we receive reports from the Labor Department that new claims for unemployment insurance last week rose a seasonally adjusted 23,000, to 352,000 or that the four-week average of new claims, a more accurate gauge of the underlying trend, increased 5,750, to 335,250, the highest level since March, investors rally.