Monday, September 10, 2007

Will Bernanke Blink?

The markets say yes, and perhaps by as much as 50 basis points.

I see the same cut, but I don't think that it is necessary. In fact, I would say that 5% fed funds is more priced to perfection than the rates were under the last 20 years of Greenspan's term. The strains we see in the market, mostly in underpricing default risk, have very little to do with the rate being where it is now, but instead, trading under 4% for more than 5 years.

The Fed's stated objective is price stability. But on hindsight (which, granted, none of us think is fair when applied to our own decisions), the Fed could have done better.

UPDATE: C'mon Alan!

UPDATE: Don't cry for us* Main Streeters! (*Wall Streeters).

UPDATE: Excellent rates roundup by James Hamilton.

UPDATE: Caplan misunderstands Glaeser and comes up with high british comedy.

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