Inflation background: oil, gold, food (wheat!) soaring. Economic outlook: 2Q GDP revised up to +4%. ISM numbers strong, correlating to roughly +3% 3Q. Trade deficit improving. Jobs picture cloudy--certainly not strong, but latest negative number mostly a cause of unexpected drop in government jobs. Credit market turmoil: better addressed via discount rate action than fed funds target. Announcing a lower target for interbank loans does nothing at all for the current lack of confidence, as evidenced by the LIBOR market. Moral hazard: bailing out people who make stupid trades is a bad idea. Capitalism without creative destruction ain't capitalism. Credibility: the effective overnight rate for August has averaged 5.00. If the target is not cut by at least 25 bps, this undermines the market's confidence in the target number. Other: Doing nothing risks extreme market volatility and a public crucifixion on the Hill. Cutting by 50 bps makes a statement that extreme weakness has manifested... there would have to be better evidence to justify this, and if it were the wrong decision there would be no looking back. They can't cut 50 and then raise sometime later. -- They're cutting 25 bps. It's BY FAR the safest move.