Read it here first: Fed Responding to Stocks?

Friday, January 25, 2008 | 07:00 AM

Read it here first: the latest meme making the rounds is whether Tuesday's emergency Fed action was a "Rogue rate Cut."  In other words, is the Fed too sensitive to falling equity prices?

From today's WSJ:

"Federal Reserve Chairman Ben Bernanke faces a perception problem: It looks like he is too ready to respond to a falling stock market.

That criticism was sounded after the Fed moved to cut interest rates Tuesday, in part because of fears that an overseas stock-market plunge would spill over to the U.S. The drumbeat grew more intense yesterday as critics and others confronted the possibility that the global selloff was at least partly a false alarm, reflecting French bank Société Générale SA's unwinding of a trader's unauthorized bad bets, and due less to economic anxiety.

A Fed official said yesterday that the central bank didn't know of Société Générale's actions when the Fed cut rates Tuesday morning. But the central bank remains comfortable with its decision, the official added, saying it was based on cumulative evidence of downside risks to the economy, of which mounting volatility in the markets was a symptom. Fed policy makers don't have a view on the appropriate level for stock prices, but are focused on the overall economic outlook, the official said."



Criticism of Rate Cut Mounts
Société Générale Issue Prompts Questions of Possible False Alarm
WSJ, January 25, 2008; Page A2

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Tracked on Jan 25, 2008 9:33:47 AM


wouldn't a lower economic/market level create a situation where rate cuts would actually have more leverage? Why not hold your powder until you see the "whites of their eyes?"

Posted by: Justin | Jan 25, 2008 7:59:46 AM

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