An update to the "Bernanke Cycle"

The pattern of Federal Reserve actions and responses by various markets, introduced here a few days ago, has been given a name today - the "Bernanke Cycle".

It is now in beta-testing and will likely be subject to further refinement in the days and weeks ahead - suggestions are encouraged. Back-testing begins next week. The latest update includes yesterday's "strong dollar" talk from the Treasury Department.

Here it is - updated today with new location indicators and a new step number 10 - "Federal Reserve talks tough on inflation" - an acknowledgment of the "equally balanced" assessment of the risks of slowing growth and inflation reiterated during yesterday's testimony before the Joint Economic Committee.

The Bernanke Cycle

1. Federal Reserve cuts interest rates
2. Equity markets surge
3. Dollar decline accelerates
4. The price of oil and gold soar
   
5. Treasury reiterates "strong dollar policy"
6. Housing market problems get worse
7. Credit market problems get worse
8. Dollar decline accelerates
9. The price of oil and gold soar
10. Federal Reserve talks tough on inflation <----- YESTERDAY
11. Treasury reiterates "strong dollar policy"<----- YESTERDAY
12. Equity markets plunge <------------ YOU ARE HERE
13. Go to step 1
    

Yes, if equity markets continue on their current trajectory, there is nowhere to go but back to step 1 and the next FOMC meeting on December 11th is a long way off.

Is an interim rate cut looming?