Bernanke's Bold Move: Shades of Greenspan - WSJ

Includes: AGG, DIA, SPY, TIP
by: Judith Levy

The Wall Street Journal posited in an article Wednesday that the Fed's half-point cut in the benchmark fed-funds interest rate indicates that Fed Chair Ben Bernanke ultimately preferred to risk taking too much action rather than too little. The move was intended to stem the tide of recent market turmoil before it pulls the rest of the economy into recession. In making the cut, which was more aggressive than many Fed-watchers expected, Bernanke appeared to sweep aside concerns about a "Bernanke put" -- a perception among risk-taking investors that the Fed under his stewardship is prepared to bail them out. Bernanke is thus more of a tactical kinsman of his predecessor, Alan Greenspan, than was previously believed, the article asserts. The DJIA took off on news of the cut, shooting up 2.5% to 13739.39, its biggest percentage gain in four years. However, the dollar sank, long-term Treasury yields rose, and oil prices popped on concerns the cut could push inflation upward. In a variation from prior statements, the Fed did not specify whether inflation or recession was its primary concern. "If the economy continues to weaken, credit conditions will weaken again because [of] falling housing prices," said John Makin of the American Enterprise Institute. "You've got to break that cycle, where you have bad credit, bad economy, bad credit, bad economy. They're taking a first step to break that cycle."

Sources: Wall Street Journal, Reuters
Commentary: Bernanke Rips Off The Band-AidFed Cuts Key Rates by 50 Points; Will Act as NeededThe Fed's Abrupt About-Face
Stocks/ETFs to watch: DIA, SPY, AGG

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