from 50plus to minus 50 in 5 minutes, page-11

The initial reaction to the FOMC decision was decidedly negative. The 25 basis point cut on the fed funds rate was expected, but there was increased chatter that the Fed would be inclined to cut the discount rate by 50 basis points to 4.50% to address some of the liquidity strains weighing on the financial markets.

The agressive discount rate cut didn't happen, which provided the first source of disappointment.

Strikingly, the Fed's directive no longer references the thinking that the upside risks to inflation rougly balance the downside risks to growth. On the contrary, while the statement did note elevated energy and commodity prices may put upward pressure on inflation, the bulk of the statement seemed to revolve around slower economic growth.

The Fed acknowledged an intensification of the housing correction, some softening in business and consumer spending, and strains in financial markets. It also said recent developments have increased the uncertainty surrounding the outlook for economic growth and inflation. In light of the emphasis on growth factors, the initial response from the stock market is likely rooted in a sense of disappointment the FOMC didn't take a more aggressive stance at this meeting.