We've all come across people in our lives who talk the big game about what they will do, only to freeze under pressure when given the opportunity. This morning we were reminded of those people when the testimony of Fed Chairman Bernanke scrolled across our Bloomberg. Below we highlight some of the main points.
Now if we look back to 2006 and early 2007, all we kept hearing from the Fed was that rates couldn't be cut because of continued inflation pressures. Today the Fed Chairman is saying that the Fed is 'ready to act in a decisive and timely manner' and 'take substantive additional action' to combat a fragile financial environment and slower growth prospects. Additionally, the Chairman said inflation 'should moderate this year and next'. We've now heard this same statement multiple times in recent weeks, and we're actually thinking about making a talking Bernanke doll with the exact phrases. Do any manufacturers out there want to help us?
So here we have a Fed that is telling us that it expects an abatement of the one factor (inflation) that has kept it from being more aggressive in cutting rates, and yet they still remain frozen in the 'ready to act' phase. What are they waiting for? We're not saying rate cuts are the answer, but we just need decisiveness and confidence from the group that controls the money. Saying you're going to do something and then leaving the markets in limbo is not very 'decisive and timely'. Until the 'ready to act' actually becomes action, the short side of the trade will keep working.
Very well stated. What is he waiting for? A date on the calendar to pass? Take a look at the S&P 500 1 year chart for crying out loud. Aren't there any technicians at the Fed who understand the juncture that passed us this morning? This morning was the time to act and everyday that passes will have diminished return effects.
Posted by: Dan | January 17, 2008 at 11:12 AM
Benanke's first real crisis and he is not handling it very well.
Posted by: Ellen | January 17, 2008 at 12:57 PM
It's really a choice between helping workers and helping savers, isn't it? They'll cut rates and the White House will pile on spending giveaways by the boatload soon. But you better tell Grandma to invest in Swiss Francs and gold, as the dollar tumbles and inflation rises.
Posted by: OldVet | January 17, 2008 at 01:58 PM
I think he's doing great not being a wall street-whore anymore. Cutting rates will only prolong an inevitable downturn.
Posted by: asd | January 17, 2008 at 05:52 PM
ASD,
Just to be clear, we are not necessarily saying the Fed should be cutting rates aggressively. Rather, our point is that they should make a decision and get on with it. The market is under so much pressure because there is so much uncertainty between now and the end of January. For all the talk regarding this Fed's transparency, it's really anyone's guess as to what they are actually going to do.
Posted by: Paul | January 17, 2008 at 06:04 PM
Thank you for your blog entry. Will will take it under consideration in our gradual process of taking decisive action.
Posted by: Ben Bernanke | January 21, 2008 at 03:38 PM