Inflation Risks – Stock Market split on Feds next move

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Oct 12 2007
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Now you know which position is the most powerful in the global economy. Although you might not command the same salary or wages as those of CEO that rewards you with millions in stocks option, basically everyone is at your mercy, if you’re the U.S. Federal Reserve Chairman. It’s funny that the only barometer that dictates mostly on how the global economy will spins is the U.S. interest rate. That was why Alan Greenspan and now Ben Bernanke is the celebrity in the financial market.

Any single internal or external factor(s) or data that may influence the decision of Federal Reserve Chairman (and his team) could send the market turns 180 or 360 degrees. And so on Dow chart 11 Oct 2007Thursday, when a European Central Bank governing council member Axel Weber pointed that the rising inflation in the euro zone may require additional policy action, the market immediately reacted in the opposite direction.

The comments appeared to raise concerns on Wall Street that European growth could slow and that in the United States, inflation could prevent the Federal Reserve from making another rate cut. Spontaneously the Dow Jones turned from green to red and traders took profit and run. That’s a huge movement for future traders.

It didn’t help to notice that JPMorgan Chase & Co. lowered its revenue expectations for Baidu.com Inc. (the China’s Google) at the same time and what else to expect beside the technology stocks took the beating. While Baidu tumbled $34.39 (10 percent) to $308.78, Google Inc. which saw its stock going upwards towards $640 level in the morning trading session plunged to $620 level – a whopping $20 price difference within the last 2 hours of trading. That’s what I call a true “Volatility”. Excited, isn’t it?

Hence with the news above the investors are now split on whether Ben Bernanke will cut the rate again as the risks of inflation seems real.

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