[lbo-talk] the Fed & Wall Street

[Doug Henwood]

Wall Street was very disappointed this afternoon by the small size of  
the Fed's interest rate cut - just a quarter-point - and the tone of  
the statement. (The Oct 31 and Dec 11 ones are pasted below for  
comparison.) Many were hoping for a bigger cut, and most were hoping  
for a statement that indicated a strong bias towards further easing  
in the coming months. That was not forthcoming. There were loads of  
complaints about how Bernanke is deaf, dumb (in both senses), and  
blind - an academic who doesn't understand markets, etc. My guess is  
that the Fed wants to prevent a meltdown but thinks a slowdown or a  
mild recession would be good - it'd keep the markets from getting  
complacent/aggressive again, and slower growth would reduce U.S.  
consumption and imports, and help get the foreign accounts closer to  
balance.

For more than two years, Wall Street has consistently expected the  
Fed to be easier than it's been - basically starting with the  
aftermath of Hurricane Katrina, when they hoped for rate cuts to  
counter the economic shock of that disaster. (Not for NO'ians - for  
themselves, of course.)

This presents a problem for populist analyses of the Fed that see the  
central bank as doing WS's bidding. I've always thought the Fed had  
its eye on the broader class struggle and health of capitalism, and  
this only confirms that impression. They seem willing to stop their  
ears to the pained screams of traders and brokerage house economists.

Doug