Prof Ben's got the moves too, finds Wall Street
Ben Bernanke, a respected Princeton professor before heading off to Washington, is finding that the nation’s financial markets can be tough graders. But he is also demonstrating that he can be a quick learner.
By Agencies |
WASHINGTON: Ben Bernanke, a respected Princeton professor before heading off to Washington, is finding that the nation’s financial markets can be tough graders. But he is also demonstrating that he can be a quick learner.
Going into Tuesday’s meeting, Bernanke was definitely failing to make the grade in the eyes of many on Wall Street. In contrast to Alan Greenspan, who gained rock star status during his nearly two decades at the Fed, Bernanke was seen as too cautious, especially at a time of crisis like the current turbulence in financial markets. But then with one stroke, Bernanke turned the jeers into cheers. He got unanimous agreement among his colleagues to cut the federal funds rate for the first time in four years and not by the quarter-point that had been expected but by a much bolder half-point.
In the eyes of investors, Bernanke had suddenly gone from a failing grade to doing OK in the handling of his first major test since taking over the top Fed job in February 2006. Bernanke, whose speciality as an economics professor was monetary policy, demonstrated that he has learned one key thing from watching Greenspan. If you find your policy is wrong, don’t stay wrong too long.
During his long tenure at the Fed, Greenspan on more than one occasion was called upon to suddenly reverse course because of changing economic data. The fact that Greenspan was able to guide the country through its longest economic expansion in history and only endured two mild recessions during two decades was proof of the success of his nimble footwork.
Since the last Fed meeting, Bernanke has shown his own touches of dexterity.
At the August 7 meeting, the Fed generated groans among investors when it seemed to dismiss the emerging problems in credit markets and the deepening housing slump by saying that the risks to growth had only been “increased somewhat.”
In the days immediately following that meeting, financial market instability increased significantly with the announcement by BNP Paribas, France’s largest bank, that it was suspending withdrawals from three investment funds, raising worries about just how far-reaching the fallout would be from rising defaults on subprime mortgages in the United States.
But the major factor governing Bernanke’s decision to opt for the half-point move could very well have been that he wanted to challenge the prevailing view on Wall Street that he was not able to respond with sufficient boldness when the situation called for it. And while the move was Bernanke’s first funds rate cut, analysts believe it is not likely to be the last, especially if the credit squeeze claims more victims and financial markets remain turbulent.
But as a good professor, Bernanke knows that the final grade depends on the quality of the course work. For Bernanke, the final exam will be whether the country avoids a recession.
Going into Tuesday’s meeting, Bernanke was definitely failing to make the grade in the eyes of many on Wall Street. In contrast to Alan Greenspan, who gained rock star status during his nearly two decades at the Fed, Bernanke was seen as too cautious, especially at a time of crisis like the current turbulence in financial markets. But then with one stroke, Bernanke turned the jeers into cheers. He got unanimous agreement among his colleagues to cut the federal funds rate for the first time in four years and not by the quarter-point that had been expected but by a much bolder half-point.
In the eyes of investors, Bernanke had suddenly gone from a failing grade to doing OK in the handling of his first major test since taking over the top Fed job in February 2006. Bernanke, whose speciality as an economics professor was monetary policy, demonstrated that he has learned one key thing from watching Greenspan. If you find your policy is wrong, don’t stay wrong too long.
During his long tenure at the Fed, Greenspan on more than one occasion was called upon to suddenly reverse course because of changing economic data. The fact that Greenspan was able to guide the country through its longest economic expansion in history and only endured two mild recessions during two decades was proof of the success of his nimble footwork.
Since the last Fed meeting, Bernanke has shown his own touches of dexterity.
At the August 7 meeting, the Fed generated groans among investors when it seemed to dismiss the emerging problems in credit markets and the deepening housing slump by saying that the risks to growth had only been “increased somewhat.”
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In the days immediately following that meeting, financial market instability increased significantly with the announcement by BNP Paribas, France’s largest bank, that it was suspending withdrawals from three investment funds, raising worries about just how far-reaching the fallout would be from rising defaults on subprime mortgages in the United States.
But the major factor governing Bernanke’s decision to opt for the half-point move could very well have been that he wanted to challenge the prevailing view on Wall Street that he was not able to respond with sufficient boldness when the situation called for it. And while the move was Bernanke’s first funds rate cut, analysts believe it is not likely to be the last, especially if the credit squeeze claims more victims and financial markets remain turbulent.
But as a good professor, Bernanke knows that the final grade depends on the quality of the course work. For Bernanke, the final exam will be whether the country avoids a recession.
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