Fed Rate Cuts Might be Here to Stay

Ben Bernanke speaks pretty clearly, for a Fed chairman, and what

he said yesterday left few people in any doubt that he’s minded to cut interest

rates again at the next FOMC meeting. This is fabulous for equity markets, since

the Fed concentrates on what Bernanke called "tightening in financial conditions".

Basically, so long as Libor remains well above Fed funds, you can expect rate

cuts no matter where the stock market might be trading. And as for inflation,

well, we’ll worry about that when we’re not in a crisis.

Is there a limit to how often this argument can be made? Not imminently. Rates

are still high enough that the Bernanke Put will exist for a while yet, even

after two or three more cuts. What’s more, long-term rates still show no long-term

inflation worries. And credibility? Markets seem to have forgotten about that

one, so maybe it’s not so important any more.

This entry was posted in fiscal and monetary policy. Bookmark the permalink.