The FOMC Press Release was record setting by establishing “a target range for the federal funds rate of 0 to 1/4 percent.”

I checked Bloomberg and found the following headlines on the main page:

1. Fed Cuts Rate to as Low as Zero, Will Use All Tools

2. U.S. Stocks Rally, Led by Banks, as Fed Cuts Rate to Record Low

3. Treasury Yields Drop to Record Lows as Fed Cuts Target to Zero

4. Fed Shifts Focus to Type, Quantity of Assets, Official Says

I’m impressed by the amount of headlines the Fed could generate with a single press release / announcement. The market rallied in response. I find this a bit odd, as it’s a bit like a family rejoicing because doctors have decided to use unprecedented experimental procedures on a loved one. Is that really good news? It looks like the Fed is running out of ammo.

I am fully prepared to hear an announcement from the White House regarding the auto bailout. If the executive branch ever wanted to deliver a boost to the market, now would be the time. Otherwise, I think we’re going to give back some of these gains. After that, I think the executive branch is going to be hard pressed to come up with good headlines before the next administration takes over. Unless they tap the rest of the TARP, I think they’re also running out of ammo.

When Obama takes office, he’s going to issue massive amounts of debt to create a stimulus package (do I hear 1 Trillion dollars?). This spending is fairly popular right now. If you support such a policy, you must be prepared to do more. $1 trillion isn’t going to be enough to cause a bounce, even if you follow the most optimistic estimates of job creation. I’m sure Krugman understands this, but do other supporters of government fiscal stimulus? Also, they’re going to have to get creative to figure out how to create jobs that will employ the people that came from the retail and financial services sectors. I can’t really imagine them building bridges. I also can’t imagine that consumer spending will recover enough for them to get their old jobs back.

Add “logistical nightmare” to the list of reasons to not support such a massive fiscal stimulus package. OK, that’s a cop-out. The reason is still “We’re robbing from our (grand)children to fix our own screw-ups.” Finance the whole thing with 5 year treasuries and pass a balanced budget / debt-payoff law requiring a two-thirds majority to overturn and I might start endorsing such spending plans. Until then, give me the moral justification for screwing over future generations in the hope that we can borrow and spend our way out of a popped credit bubble.