Tough Love from Ben Bernanke

Well, it seems as though Fed Chief Ben Bernanke has "grown a pair" over the last six months, today's FOMC meeting having come and gone with nary a hint of coddling for financial markets - that is, financial markets that many feel are in the middle of a global meltdown and in dire need of rescuing.

The last two policy statements, shown side-by-side below, acknowledge the recent developments (e.g., the nationalization of $5 trillion in mortgage debt, the demise of Lehman, Merrill, and, soon, AIG) but fail to provide any shift toward easing, let alone a half-point rate cut as some were expecting. (Click to enlarge.)

The characterization of the financial market conditions changed from "under considerable stress" in August to the strains having "increased significantly".

Almost as if, nothing's really changed.

This was a bold move - one that hopefully won't backfire.

Recall that "tough love" was also offered up about a year ago last summer, only to be withdrawn in favor of coddling a short time later.

If short-term rates weren't already at the freakishly low level of two percent, one might say that, "This is central banking the way it's supposed to be done."

Comments

[phdinsuntan...:]

SKF is the way to go, even if they bailout AIG

2008 Sep 16 03:56 PM

[Kath H.:]

Perhaps this explains why Bernanke's moves are not really tough love at all:

"Sept. 16 (Bloomberg) -- The Federal Reserve is considering extending a ``loan package'' to American International Group Inc., the insurer facing a cash shortage, according to a person familiar with the negotiations."

www.bloomberg.com/apps...

One has to consider everything the Fed is doing, not just rate changes. He'll take care of his big friends.

2008 Sep 16 03:58 PM

[cyclingscholar:]

AMEN! US interest rates should RISE, or foreign Euroland rates should be CUT. This would strengthen the dollar, collapse oil and natural resource prices, push funds back into stocks, and productive, markets; and reduce international recessionary pressures.

2008 Sep 16 03:59 PM

[icandoitdon:]

negative real interest rates...that's tough love.

i don't think so.

2008 Sep 16 04:51 PM

[bearfund:]

In this case, the time between "tough love" (we'll keep interest rates far below even the "core" price increase metric we cherish) and coddling was a few hours. Again, the next move will be down.

2008 Sep 17 02:17 AM