Unpredictable Bernanke

One of the reasons that the markets loved the Greenspan Fed was that it was

generally very predictable: for all that Greenspan was an expert at mumbling

incomprehensibly, the markets never seemed to be in much doubt what he would

do at any given meeting. Bernanke, by contrast, is full of surprises: first

the discount-rate cut, then the 50bp Fed funds rate cut, and now no

one has a clue whether he’ll cut again in October or not.

Predictability is not a bad thing in a Fed board: if you know what you’re going

to do, there’s really no harm in signalling that to the markets. Maybe as Bernanke

gets more settled in, his actions will be more predictable. But for the time

being, it seems that the markets will get a little bit nervous in the run-up

to any Fed meeting. Which might make Bernanke look good, ironically enough:

the markets might well rise whatever he does, just because he will have lifted

the cloud of uncertainty.

(HT: Mark

Thoma)

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