From CNBC: The Fed chief's measured response to crisis.
As the world's financial markets experienced a wrenching upheaval and markets for home mortgages and many other kinds of debt came to a standstill, Wall Street begged Ben S. Bernanke and the Federal Reserve to do something about it.On Friday, they did. Wall Street rejoiced when the Fed cut the interest rate on loans to banks and indicated that it would do what it takes to protect the economy from problems in the markets.
But the Fed, chaired by Bernanke, was not as disengaged before Friday as conventional wisdom suggested, and it is not now as eager to take dramatic action as some investors seem to hope, close watchers of the central bank say. Friday's moves were narrowly tailored, and they stopped well short of using all the tools in the Fed's arsenal to ease the crisis, such as lowering a key interest rate that would make it cheaper for consumers and businesses to borrow money. ...
Bernanke is betting that the underlying U.S. economy is strong enough to weather the damage. In this view, if he had done more to address the concerns of Wall Street sooner, it would have had the effect of bailing out people who made bad bets and could have worsened the crisis. Crucially, Bernanke does not expect the ups and downs of financial markets to cripple what economists like to call the "real economy" -- the decisions of businesses to expand and hire, for example.
If he is right and the United States does not suffer any significant economic downturn from the recent trauma in the markets, he is likely to be heaped with praise for his level-headed response. It might even gain him some of the mystique that his predecessor, Alan Greenspan, enjoyed.
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Posted by Forkum at August 19, 2007 01:19 PM
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