Fed Signaling More Rate Cuts on the Way?

Includes: IVV, SPY
by: Bespoke Investment Group

In addition to an informative article describing the issues in the credit markets surrounding SIVs (Structured Investment Vehicles), a half page Op-Ed piece in today's WSJ by Harvey Rosenblum, the executive director of research at the Dallas Fed, refuted the argument by some market participants that the Fed is creating a moral hazard for speculators in the markets.

Instead, Mr. Rosenblum says that if there is any moral hazard, it is that the Fed's ability to smooth the business cycle has created an environment where "Americans spend, save and invest in the belief that recessions, if they occur, will be short, mild and infrequent. People believe that unemployment is something that happens to someone else.

Indeed, the younger generation in the work force has, for all intents and purposes, had almost no experience with the unpleasantness of a recession. To them, it's just a word that begins with "R" but they cannot define it or describe it. That's real moral hazard, because it drives their consumption and investment behavior."

Regardless of whether you agree or disagree with the arguments posed, one has to wonder why the Fed is going to such lengths to say they are not creating a moral hazard? Could they be prepping the market for a series of additional rate cuts down the line?