Some wanted more

And so it is 25 basis points and not 50. Link to statement

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

I am giving three final exams today (and am finishing up one of them now), so this has to be brief. Wall Street was clearly not impressed by this statement. The reasons are pretty straightforward. They were hoping for 50 basis points. (In your dreams, Wall Street.) So there was some obligatory pouting about that. But also the statement acknowledges the weakness but promises nothing more. The last paragraph (before the vote) is telling. The Fed is pointing to increased uncertainty. This is a classic instance of the committee wanting to buy a little flexibility. (We have discussed this before though I don't have time right now to find a link to the discussion.) In other words, they do not want this series of cuts to turn into anything resembling a "measured pace." They want to be able to say, "We just don't know right now."

I have to go start exam number three, so I will leave you with the best quote I have seen about the action so far. From CNN/Money.

"The Fed is not going to bail out the market. Time will heal these wounds. People don't want to hear that but it's the real world," said Rich Berg, chief executive officer of Performance Trust Capital Partners, a Chicago-based bond trading firm.

Indeed.