Bernanke's 'Shock and Awe' Monetary Policy Less Than Convincing

Now that most people have come to their senses about rate hikes by the Federal Reserve occurring any time in the foreseeable future, let's have a look back once again at the last two rate cutting cycles for another reality check.
Now that it's been a full twelve months since the first reduction in short-term interest rates, which happened last September, we are officially "behind schedule" relative to the last easing cycle that began in 2001.

That's kind of surprising when you think about it.

Ben Bernanke has effectively utilized "shock and awe" monetary policy such as three-quarter point rate cuts to make most market watchers think that he's been more aggressive in slashing interest rates than his predecessor.

But, clearly, one year in, he has not.

One year into the last bubble clean up mission, ol' Alan Greenspan had already eased by almost five percentage points - from 6.5 percent to 1.75 percent - and that's where he rested for almost a full year. Another half point cut, a six month pause, and then another quarter point lopped off more than two years after the first rate cut brought the Fed funds rate down to one percent where it sat for another year.

Except for the retired Fed chairman, the entire world now seems to think that rates were left at one percent for way too long, but most people don't seem to remember that it took almost two-and-a-half years to get there.

Given that we are only a year into the current downturn, one that is likely to be more severe than the last due to its broad nature and no ready cure in sight (i.e., no new financial bubble on the horizon like last time when a fresh housing bubble followed a bursting stock bubble), it makes good sense that current Fed Chairman Ben Bernanke is taking his good 'ol time.

Comments

[scobbydube:]

And look where we ended up with Alan.. Isn't he the one we should be blaming for most of the mess that has been created with his easy money policy.. Lowering the funds rate to zero isn't going to help now - I think this was one of Ben's better moves and I am not a big Ben fan either.. We need more tough love..

2008 Sep 17 07:31 AM

[Eric Boughton_:]

You imply this is another "bubble clean up mission"? Since when did providing more booze help a drunk clean up?

2008 Sep 17 06:02 PM

[lonie:]

Evidently there has been a terrible accident on the finance train line . the Federal General Hospital is full with victims on a money intravenous injection . There is a line of bloodied ,dazed ,hat in hand victims circling the place and they fear the injections will run out before they reach the front door.
I hear what caused it was, they threw the engineer and brakeman overboard years ago and was partying on , red stop signals flashing and no one to notice and stop. someone had 'lifted' a rail !

2008 Sep 18 02:34 AM

[RECON605:]

A thought lost in all of this, Bush is controlling the strings to minimize the goofed up policies that he and Cheney ran for almost 8 years. I wonder if it was all on purpose including the Russian attack in Georgia.

2008 Sep 20 10:22 PM