Back in February, I warned that this economic slump was like a slow motion car crash. Today, as the Dow fell 358 points, it is dawning on investors that we are in for a long recovery. One of the big problems is that the Fed is very sensitive to the politics of an election year–the conventional wisdom being that an interest rate hike might make life for Republicans even more miserable than it already is. George Bush Sr. never forgave Greenspan for raising the Fed Funds rate in an election year. Doug Kass said in his morning note “the consumer would be more helped by reining in food and energy costs than he would be penalized by higher short term interest rates.”
The Republicans are in a pickle (to quote one of our correspondents). They represent the investor class, who probably make up 85% of the 16% of the voters who say the country is on the right track. When they look at their brokerage statements in early July, they are going to be just as pissed off as the rest of us.