Who is Saying What about the Fed Rate Cut?
I have been reading comments on the Federal Reserve’s 75 bps emergency rate cut on Jan 21st. Some people agreed with the Fed’s move, saying it is the right move to avert the deterioration of economic slowdown. Some people do not think that the Fed’s rate cut is appropriate, believing it is a panic reaction to the stock market meltdown. While there are some people that I would like to hear from about their opinions on this latest development but interestingly, they are quiet.
The inter-meeting federal fund rate cut was made after a video conference of the FOMC members at 6pm, on Jan 20th, the Martin Luther King’s day, a US national holiday. It was in the midst of the overseas stock market plunge of the magnitude of 7% to 10%. The next day, the decision was announced one and half hours before the US markets were open. Inevitably, people suspect that the Fed was panic or prompted to cut the rates because of the market collapse. This move caused a lot of controversies among people in business, financial markets, or the academia.
I am putting aside those arguments and just giving one observation of who are those people that either agree or disagree with the Fed’s policy adjustment. It is interesting to see that there is a high degree of concentration of approval or disapproval among different professionals regarding the Fed’s decision on the emergency rate cut.
Among people who cheered or are satisfied with the Fed’s interest rate cut are mainly coming from the financial sector such as fund managers, investment bankers or market strategists, or in a simple term, people on Wall Street. They have argued for the rate cut for quite some time since the beginning of 2008 and they got it. So they are happy to see that the equity markets around the globe were salvaged (to some extent) and their portfolios were saved from the further losses.
In addition, scholars from the think tanks and the former Fed officials generally supported the Fed’s decision or at least avoided criticizing the Fed publicly.
However, there are some exceptions. Some people working in the finance world did not approve the Fed’s move and were worried about the way how the Fed handled the current financial crisis and economic recession or slowdown. Again, they are the minority among people in the finance or business community and generally they are not working directly on managing investment. Or, they have made more than enough money and need no worries about the plunge of the stock markets.
People who criticised the Fed’s decision are mainly some independent economists from the academia or research organizations. Many of them are the Nobel laureates. This camp in general is not happy with the timing and the rate cut. They do not think that this is the appropriate way to manage monetary policy and the right way to resolve the current crisis. They voiced concerns that the Fed’s move would assist moral hazard and lay the foundation for the next bubble.
Again, there are exceptions. Some economists are on the Fed’s side, albeit they are in a very small number.
Anyway, it will not do any harm if we listen to some minorities’ opinions, no matter who they are and what their opinions are. A lot of times, these minorities hold some unique perspectives different from the mainstream opinions.
Some people are conspicuously missing from the scene of the Fed appraising or bashing. Maybe I missed their comments. These are some well respected economists or professionals. I am wondering if they are intentional to shun any comments. For any reason? I am not sure. Maybe for some economists, they are unwilling to criticize the Fed publicly if they want to follow the career path of the current Fed chairman Ben Bernanke. Or, there are already too many voices or noises out there and any additional comments become redundant.
The fact that monetary policy has so many economic and political implications makes it easy to understand why some people do not want to say anything publicly. Indeed, the Fed’s job would be a bit easier if people could leave Bernanke & Co. alone. Too much pressure and unsolicited advice serve no good.
