Dollars and Jens
Wednesday, January 30, 2008
monetary policy
Enough is enough. It's time for Ben Bernanke and the rest of the Fed to pull a page from Tony Danza's book and show investors who's the boss.

Yes, the economy is teetering on the edge of a recession, if it isn't already in one. But the Fed has already cut the fed funds rate by 175 basis points since September.
Well, maybe. At the moment, the fed funds target sits closer to where it did at the top of the cycle than to its last bottom, though that might no longer be true in fourteen hours.
Fisher, as an alternate member of the Fed's policy-making Open Market Committee last year, did not vote on the 2007 rate cuts. But he will be a committee member this year. So his opinions are worth paying attention to.
I tend to think Fisher's opinions, like those of his predecessor Robert McTeer, are generally worth paying attention to.

He warned that the Fed still has only two mandates, fostering price stability and supporting economic growth. Keeping the markets happy is not a new third mandate.

"Our job is not to bail out imprudent decisionmakers or errant bankers, nor is it to directly support the stock market or to somehow make whole those money managers, financial engineers and real estate speculators who got it wrong. And it most definitely is not to err on the side of Wall Street at the expense of Main Street," he said.
The fed certainly, in the process, needs to anticipate the effect of Wall Street on Main Street in deciding what interest rate is appropriate; there may be some room for trying to influence financial markets for the same reason, but that can get dangerous in a hurry. If the fed cut rates last week because it was going to cut them anyway and felt the timing would reduce the likelihood of an economy-weakening stock market event, I have no problem with that.

Initial claims of unemployment have been dropping for the past month, and based on what I know, I'd be leaning against a 50bp cut, but I have more confidence in the fed than I do in me.

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