25 basis points

The Fed cut rates another 25 basis points, but what does that mean?

The Fed attributed this cut to risk of recession, the housing slump and credit market worries. Yet Forbes.com columnist Paul Maidment is asking whether there is something more behind the Fed's decision put inflation on the back burner.

Does the cut mean the Fed "can see either a lurking systemic risk to the financial system or a transmition of the pain that Wall Street is feeling to Main Street," Maidment writes.

If not, the cut points to Bernanke's Fed mismanaging inflation. Maidment argues that the broader economy is doing well, and that the cumulative rate cut of 75 basis points is sparking an inflation explosion. With gold and oil reaching for record highs, and food prices on the rise, Maidment builds a strong case.

Read it here

The Economist adds a bit of fuel to the fire.

"The Fed has validated the impression in financial markets that investors’ expectations drive the central bankers’ decisions. It has done nothing to dispel the idea that if Wall Street clamours loudly enough for a rate cut—and futures markets price one in with any degree of certainty—the Fed will oblige."

So the cut could mean the Fed is giving too much weight to the futures market and its forecasts.

The Economist also points out that US economic data is flexible due to revisions, making the Fed's job even more tricky. A recent example were August non-farm payrolls, which were revised down in September and then back up in October. GDP numbers, however, have a habit of sliding down, while inflation rockets up.

So, what does it all mean? Wait and see.