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WHAT'S NEW
October 31, 2007
Shoot the Moon or Pass the Queen of Spades
The Fed has an interesting choice today: to placate current markets by a well anticipated rate cut or to think deeply about the signals about inflation, the currently low likelihood of a recession and sit tight. Any decision taken involves a risk evaluation and a strategy. The riskier course---certainly politically----would be to avoid further liquidity and to stand pat until it is absolutely clear that inflation will not again gain the upper hand.
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September 18, 2007
Restaurant Review: the Fed Scrambles Eggs
We readily admit our error. We thought better of the chef. Surely, it depends on what you like: a precisely made omelet or just a mess of scrambled eggs with ingredients thrown in from every direction. A hungry man doesn’t argue about finesse. Uncle Ben must have been ravenous
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September 18, 2007
Making an Omelet: the Bernanke Recipe Book
The FOMC’s decision today will undoubtedly reflect many different opinions, all subsumed into a single statement. Our best estimate is that there will be a 25 basis point cut in the FF target, a cut in the discount rate that could well exceed 25 basis points (perhaps as much as a 50 basis point cut and a clearer indication that the Fed’s focus has turned to offsetting the impact of tighter credit and lower housing prices. It will be an omelet, mixed and scrambled ingredients, beaten into a single dish. The market’s problem will be to disentangle the ingredients that led to the decision and that will not be an easy task, even if the desire for transparency by this Chairman is quite high. Whatever the decision, it will mix forecasts, reactions of economic agents to perceived risks, and not least, a congealed assessment of risks by the FOMC members. We can characterize the outcome with a scenario analysis that highlights the complexity. It may not lead to a clear market perception of what the Fed has in mind going forward.
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