I only trade on a daily basis, but I think what happened yesterday was, the market perceived, that the Fed comments on inflation could have been worse. They still said that they could raise interest rates by 0.5% at any meeting and it would still be "measured". It just happened that the Dow was sitting on year lows and it rallied strongly on the statement.
I agree with you Greenspan is between a rock and a hard place, but with markets, sentiment can change on a near daily basis. We are now looking at a Goldilocks scenario. If Non Farms come in at say 250K+ then market more than likely will sell off because of fears of wage inflation. However, if they come in at 175K, then the market perceives that employers are not recruiting, thus have little confidence in getting future orders.
My own concerns are more oil related. With NYMEX crude, at $52 (having retreated from $58), to what extent will this be inflationary? I will be looking very closely at Q1 results, to see if there is any impact. Already WMT has disappointed as has F and GM. Another problem is the trade deficit. Last month it was $61bn, and it seems to be growing. Finally, one can never rule out some sort of exogenous "shock". Most people think in terms of terrorism, but what would happen if an earthquake flattened Tokyo? Or we got another LTCM?
Regarding Greenspan, he represents continuity. The market likes that. He says very little, but is pretty good at outlining his strategy well in advance. Most of the time his comments are nothing other than "constructive obsfucation". This, after all, is the man who, when proposing to his current wife ( a former NBC business reporter), had to do so twice, because she did not understand him the first time.
