So Bernanke lived up to the nickname with a 75 basis point cut before the open.There are plenty divergent opinions about every aspect of the cut and how effective, or not, it can be.
My own take is that the Fed is unlikely to be bigger than the market for more than a day or two.
In the last few months Greenspan's image or legacy or whatever you want to call it has taken a beating.
The market's faith in Bernanke erodes visibly by the hour. Credibility seems like it would be an important thing for a central bank and its big cheese and I'm not sure the Fed has enough.
Candidly I am not sure what the consequence really is. Fed or not there will be recessions and bear markets so does this mean it'll be a little worse? Should "a little worse" matter to most people? If the market bottoms out with a 35% drop instead of 30% before going back up will it matter three years from now?
My initial thought is that this would hurt the US dollar more than anything else. A weaker dollar dominoes into other things like higher rates, slower growth and higher inflation. Maybe not much higher rates, much slower growth or much higher inflation but it could be noticeable.
Some folks believe the Fed had to cut rates and some say otherwise. When the economy starts to slow down the Fed cuts rates but the action taken Tuesday seemed more about global equity markets than economic growth rates. I don't know if that is true but that is how it seems which is one of several things that impedes their cred.
Unfortunately their is no resolving anything with this post because there are so many variables with the Fed in terms of the market's perception, some of the clearly reactionary actions they have taken and the massive lack of faith in their ability to get anything right.
8 comments:
Bernanke can't seem to figure out which is needed first, his hand was on the hot/inflation spigot, then on the cold/recession handle. In the meantime, the economy and the marekt are taking a bath.
He is the unlucky heir to problems a long time in the making. His action yesterday in response to world markets indicates he has deep fears, the kind once expressed by Satchel Paige:"Don't look back--something might be gaining on you."
is making adjustments to a portfolio at this stage of the market generally a bad idea? I thought I was allocated ok but as I see good stocks and mutual funds take big hits, I feel like I should lock in profits. I think its too late but still appreciate your opinions.
I agree with you, Roger, that the Fed's recent actions seem to be driven by the stock market. The problem is that Fed could lower interest rates to 0.00%, and it still wouldn't restore dividend yields to their historic norms. The coming crash was going to happen eventually.
Bernanke would do us all a favor if stopped watching stock prices altogether. Just keep the economy afloat please!
Another thing to consider is that all of our risk free money returns are suffering. I know saving is passe, but I'd rather have the risk free rate > 5% and have the market bottom at 35% vs. 30%.
Roger! You said "My initial thought is that this would hurt the US dollar more than anything else." That would not be so bad would it? Goods and services being lower in price abroad would help the US economy a lot, it would seem to me. That and increased savings instead of loans to buy a bigger house.
Willy
There comes a point where the dollar becomes very bad.
A lot of people have offered very gloomy predictions around this. Candidly I am nowhere near smart enough to know the point where it really matters but that point exists and if the point is ever breached it would be very bad and very difficult to recover from--given the US is coming from the point of being the world rserve currency.
I'd seen that picture before and had a good laugh but I don't recall the ...
"Warning: will not prevent a severe recession" caption.
Don't know if you added that yourself but it makes it even funnier (the picture; not the recession).
"In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," said Jean-Claude Trichet, president of the ECB.
I'm glad at least some people have smart people keeping an eye on things. It's too bad we have to have our Fed who worries more about an election year and therefore their jobs than sound fiscal resonsibility.
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