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March 18, 2008
Is the Fed Confused? Or Just Being Confusing?
The Fed has delivered a 75-bps cut to 2.25%, which splits the difference between the two most likely scenarios from the Cleveland Fed. Ben Bernanke has compromised, like any good academic chair should.
But this strikes me as somewhat confused. Is it inflation you're worried about? Is it the financial services industry bailout? What is it? Why not get in front of the 2-year and call it a day? Why dodder around fretting about inflation if you really think you're facing a credit market meltdown? And to have two dissenters is definitely material, both citing inflation as a concern. When is the last time we had two dissenters on a Fed rate cut/increase?
Don't get me wrong. I was pulling for a sizable rate cut. But this Fed inability/unwillingness to get ahead of markets on rates is almost as irritating as these make-everyone-happy compromises. Damn academics.
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So, if perhaps the fed got out in front of the markets last August (like our bud JC suggested), say dropped rates 200 basis, then the bear never gets sick and stays well by continuing to leverage the kool aid? Can someone kindly explain...thanks.
Upon reading this I had no idea of what you thought the FOMC, as a committee, should do. In particular, what should the chair do when the members do not agree?
I can't fit this all into a comment, but anyone interested can see a more complete discussion at http://oldprof.typepad.com/a_dash_of_insight/2008/03/analyzing-fed-c.html.
I invite comment.
Jeff
its a bit like having 4 or 5 fires burning, and enough water to fight 1 or 2.
instead of doing nothing, you just do something to put one fire out, and pray that rain is on its way.