Dollars and Jens
Wednesday, September 19, 2007
In case you haven't been paying attention, the Fed did, in fact, cut rates by 50 basis points yesterday. The stock market then went up.
This morning, the Wall Street Journal had a kind of weird editorial (subscribers only) which seemed to go out of its way to avoid saying that the Fed loosened too much while leaving the impression that they thought the Fed loosened too much. Maybe they aren't convinced that it's wrong, but just want to express wariness, as such:
The point we'd like to stress today concerns the Fed and its credibility -- or to put it more tartly, its character. It is easy for a central bank to cut rates and ease money. At least in the short term everybody loves a good time, as yesterday's equity euphoria showed. The harder task is being willing to tighten money amid the business and political criticism that inevitably follows. That's the true test of a central banker's mettle.And they have a point. Preserving the value of the currency should generally be their top priority. The risk of inflation is not currently at an all-time low, but it's not terribly high, either.
If we do see signs of inflation, that will be a good time for Bernanke to prove that he's willing to pull on the reins of the money supply. But that's not where we are right now.