Fed Minutes Write Bad Commentary For Stocks

The FOMC minutes from the Aug. 7th meeting came, and traders were disappointed with the commentary. How disappointed? The Dow dropped 140 points after the minutes came out at 2:00 ET, an unusual move considering FOMC minutes rarely move markets, let alone 150 points.

I mentioned earlier that the Fed minutes todaywould be more important than usual, that the markets would be looking for comments about the danger of a slowing economy, that this would be the rationale for lowering rates.

The Fed gave little indication that it was more inclined to cut rates; instead they emphasized that they "expected a return to more normal market conditions."

To be sure, the Fed is clearly concerned about the economy. They noted that "further deterioration in financial conditions could not be ruled out...and might require a policy response." On housing, they noted the downturn could be deeper than thought, and that real consumer spending has slowed. Still, the lack of any mention or hint of even one member agitating for a rate cut was clearly a disappointment.

But those agitating for a rate cut will not give up so easily. They are emphasizing that, since the FOMC meeting August 17th, things HAVE changed, the Fed HAS seen more risk (e.g. they cut the discount rate), and Mr. Bernanke will address those increased risks on Friday.

Meantime, the corporate bond market is functioning: today Capital One priced $1.5 billion in 10-yr. notes, and AT&T priced $2 billion in 30-yr. bonds.

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