Ben Bernanke Loves Surprises

Yesterday on CNBC I expressed my strong surprise that the debate about Fed rates cuts today made it seem like it was entirely a matter of 25 vs. 50 basis points, with the latter more or less a certainty. My view, as I said then, was that Bernanke is likely to do 25 points, but the no-cut option is considerably more likely than the market thinks. Why? Because Ben Bernanke loves surprises, and he doesn’t want to be seen as the market’s puppet.

I see the WSJ has come to the same conclusion this morning:

The behavior of financial markets implies near certainty by investors
of a quarter-point cut in the Fed’s key short-term interest rate. But
for policy makers, the decision is between the quarter-point reduction
and no cut at all.


  1. Vijay Veerachandran says:

    I love this Man. Always surprises. If there is a cut its for the street. Waiting..

  2. I agree that he “doesn’t want to be seen as the market’s puppet”, and yet that is what he is. Anyone who does a surprise 50 basis point cut after notifying his friends at Goldman Sachs so they can put the trade on IS the market’s puppet. I’m sure he doesn’t want to be seen as such though.

  3. If not the market’s puppet he is at least its servant–or else he fancies himself a central planner and that seems unlikely.
    “The market” in the above statement is generic and not synonymous with “Wall Street.”

  4. Andi and Paul raise interesting points: he is both puppet (in that the Fed’s actions are dictated by what the economy is doing) and puppet master, in that he tries to take action to make the economy do what he wants. Which is he more of, and which SHOULD he be more of? True capitalism would imply free market, which would require no “management” (i.e. Central Planning, i.e. communist economy) by a central authority, yet the Fed clearly acts as at least a Central “Guider” if not “Planner.”