FED Rate Cut... Has a Balance Been Reached?

According to yesterday's FOMC statement...

"The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. "

The tone taken by the FOMC statement seems to have a very neutral stance. Could it be that things have balanced out?

We must also remind ourselves that there was actually one vote in favor of keeping the rate unchanged (9-1). The Committee judged that some inflation risk remains which does not seem like an overwhelming concern, especially when they decided to the cut the rate. They also cited economic growth as solid, so why lower rates? This along with a successful earnings season (for the most part) means that the credit crisis could be overdone. The FED must believe the economy could easily weather the storm and that is why they changed their stance in the statement to a more neutral tone.

In short, it looks like the Fed is hinting that it has realized two rate cuts as a 'momentary' measure to ease recovery from housing and the credit crisis. I would go on to state that perhaps other members wanted to keep the rate unchanged but a strong signal would have been needed to go against expectations. A signal like the turbulent money markets that sparked a 50bp cut in September.

Not withstanding future macroeconomic indications, I would say things look relatively optimistic for the U.S. economy in that the crisis will be limited to housing and credit markets. There appears to be a good chance that there will be strong corrections to the housing bubble, the eur/usd, and commodities looking out to end of 2007 and first half 2008. The focus might then return to inflationary pressures when dollar weakness and oil strength resumes its trend.