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Cool Hand Fed?


No failure to communicate here.

The Federal Reserve came, saw and did nothing and by the time the session was over stocks had rallied, tumbled and done nothing, too.

Actually the NASDAQ Composite put in an impressive session but the Dow finished unchanged for the day, shedding more than 100 points in the last hour of trading. For all the drama, the Fed did okay considering it was in a no-win position. Ben Bernanke was like Cool Hand Luke, with a blank stare instead of the sly smile, but you get the point. The Fed Chairman is taking heat from all quarters and even from within his own ranks. I can't think of anyone in the public eye whose opinion polls have gyrated like those of Ben Bernanke.

Ironically, after it's all said and done, I would say that at this point those that leaned toward liking him still do and those that were critics out of the gate continue to harbor disappointment. Just like the Paul Newman classic, the action and short statement from the Fed had some memorable lines.

"Sometimes nothin' is a real cool hand…"

FOMC Statement excerpt:

"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."

There was a lot made of the fact that the Fed did nothing yesterday, but on the contrary, in my opinion it did a lot, including reversing one of its most aggressive rate cutting cycles ever and signaling it was going to be nimble enough to tackle any problem.

I know this is the age of swift action but the fact remains that people are expecting an awful lot in a very short period of time. After cutting rates from 5.25% to 2.00% through seven straight cuts, including four this year (two were 75 basis point cuts), it's a little nuts to think the Fed is going to turn on a dime. In fact, it was 15 months from the last rate hike to the first cut in the latest cycle.

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As for historic precedence going the other way, the last time the Fed shifted from rate cutting to rate hiking took a year. June 25, 2003 was the last rate cut and it wasn't until June 30, 2004 that rates were hiked. I say to those clamoring for a rate hike: Just be cool.

"What we have here is failure to communicate..."

FOMC Statement excerpt:

"The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."

I think the Fed was transparent enough to add credence to the notion its next move will be a rate hike. "Uncertainty" about inflation remains high reads "We will take action to quell inflation." Considering the length of the statement, I think the direction of the Fed's next move is clear and so, too, are would-be catalysts.

"Some men you just can't reach..."

FOMC Statement excerpt:

"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting."

Richard Fisher, or should we call him Richard the Lionhearted? I guess the more interesting aspect of the voting was that Charles I. Plosser, despite his regal name, didn't opt for hiking rates just yet.
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