Open Thread: Markets, Inflation, Growth, Recession

Wednesday, September 19, 2007 | 08:30 PM

Yesterday, I said that the Fed had become Wall Street's "Bitch". It was toward the end of the post, and I assumed it would hardly get noticied.  However, I guess it was pithy enough to have gotten picked up by a few media outlets.

Today, I wanted to steer the discussion the other way: Ben seems like a smart guy who does not want to be Wall Street's play thing. He doesn't strike me as irresponsible, and he sure doesn't want to go by the nickname "Helicopter Ben."

Ghelicoptermed So let's consider the other side of the coin: What did the Fed Chair and the FOMC see that spooked them into a half point reaction?

The Journal noted "The move came amid a sizable drop in home sales, construction and prices that could send mortgage defaults higher and damp consumer spending . . . Fed officials had been leaning toward a rate cut in recent weeks, but the case for the larger move may have been sealed by a report two weeks ago revealing that employment declined in August for the first time in four years. That showed the economy had slowed markedly even before the full force of the market turmoil had been felt."

So, did they finally realize that Housing is a giant mess? What was it the NFP number, the Retail sales data, a combination of all three?

What say ye?



Graphic courtesy of Jordan Roy-Byrne . . .

Wednesday, September 19, 2007 | 08:30 PM | Permalink | Comments (61) add to | digg digg this! | technorati add to technorati | email email this post




My vote is that the recent US data helped somewhat, but that the real clincher was the scenes of people lining up to withdraw cash from Northern Rock. The initial discount rate cut on August 17 came the day after people lined up to withdraw cash from Countrywide in California; I don't think they wanted to risk a repeat of that on a worse scale. It seems as though this Fed is very sensitive to systemic risk and the level of confidence in the financial system, and properly so in my opinion.

Posted by: Steven Milos | Sep 19, 2007 8:44:31 PM

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