These are comments from some of Wall Street's top money managers, investment strategists and economists, responding to our CNBC Econ-Recon Snap Survey. The survey was conducted for one hour immediately after the Federal Reserve's post-meeting announcement today that it is not making a change in interest rates.
Timothy Ghriskey, Solaris Asset Management: "It was as expected, but not as hoped for!"
Richard Sichel, Philadelphia Trust Co.: "Mr. Bernanke is allowing the system to sort things out at this point."
Michael Painchaud, Market Profile Theorems: "It reduces the probability that the sub-prime problems are going to significantly impact the economy as a whole in a meaningful way. The Fed is in possession of a significant volume of information to make this assessment."
Hugh Johnson, Johnson Illington Advisors: "The (initial) decline in the equity markets in response to the statement reflects the consensus view of investors that the Fed, although not dismissive, did not express a deep enough concern about changes in credit conditions and their impact on the economy going forward."
Richard DeKaser, National City University: "Aside from acknowledging recent financial market volatility, the statement was essentially unchanged. Hence, the Fed demonstrates stability, while at the same time signalling an attentiveness to market conditions."
Kurt Karl, Swiss Re: "Given the lack of liquidity in some markets and credit problems at large banks, I expected the Fed's statement to be more reassuring and drop the 'inflation concern.' Leaving the statement unchanged has increased the risk of recession."
Robert Froehlich, DWS Scudder: "The Fed is out of touch with reality and should be cutting rates right now!!!"
Bill Hummer, Wayne Hummer Investments: "It is commendable that the Fed did not validate the stupid lending decisions that created the mortgage mess. Neutrality is the right medicine for current ills."
Rob Morgan, Janney Montgomery Scott: "Every time a Fed rate hike cycle ends, the players who are over-leveraged eventually get washed out of the market. That is what we are witnessing now - not a credit crunch. It is tough to have a credit crunch when default rates are at record lows, leverage is low, and aggregate cash flow for deals (in general) covers the cost of borrowing. The Fed recognizes that we are not in a credit crunch and appropriately with today's statement showed that they are not taking their eyes off the inflation bogey."
Subodh Kumar, Subodh Kumar and Associates: "Central banks globally continue to focus on inflation. The Fed continues this stance in its FOMC. The next to watch is the Reserve Bank of Australia which may raise rates from 6.25% after its next meeting on Wednesday.The Fed acknowledged the issues but clearly is stating that it expects market solutions to credit issues-diminishing any expectations of a 'Greenspan put.' The equity corrective phase with high volatility likely continues but recession (or bear market) risk seems low. Quality of delivery and leadership of individual companies is likely to be the favored equity market factor."
Maury Harris, UBS: "UBS all year long consistently has expected Fed easing during 2007, and we still expect two 25 basis point fed funds rate cuts before year-end."
John Clarke, H.C. Wainwright & Co.: "The Fed is doing a good job monitoring inflation, voicing its concerns on inflation and bringing ease to the markets."
Jeffrey Kleintop: LPL Financial Services: "Today's statement was a disappointment for market participants. Yesterday's stock market rally was supported by the idea that the GSEs could provide some added liquidity to the mortgage market and investors were hoping that today the Fed would appear ready to provide added liquidity, as well. Over the last 20 years the Fed has cut rates at the meeting following the move to neutral (or weakness) from tightening (or inflation). Today's risk assessment paragraph was as close to neutral as they could get while still noting the risk to inflation remained the predominant concern - suggesting a rate cut is not likely at the next meeting.
Joseph LaVorgna, Deutsche Bank Securities: "The Fed is on indefinite hold but the risk is to the downside if growth disappoints and/or financial conditions tighten substantially further."
Ram Bhagavatula, Combinatorics Capital: "The Fed wants to see whether recent market turmoil is just that. If the economic numbers weaken further, especially payrolls, the FOMC has set itself up to be ready to act."
Brian Wesbury, First Trust Advisors: "By resisting calls for easy money, the Bernanke Fed is helping to prolong the current economic expansion, while maintaining control of inflationary expectations."
John Silvia, Wachovia Corp.: "Fed taking a wait and see stance. Look at the data after summer vacations end."
Saul Hymans, RSQE University of Michigan: "The Fed was right to hold the Fed Funds rate fixed today. That decision reflects a proper view of the balance of risks in the economy over the next year or so, rather than the myopic view commonly taken by the actors--and especially those who sell advice--in the financial sector."
Brian Stine, Allegiant Asset Management: "While the markets were disappointed with today's FOMC statement, the Fed is nevertheless on schedule to begin easing as early as December."
Bernie Schaeffer, Schaeffer's Investment Research: "Jim Cramer was right yesterday when he said the Fed is run by a bunch of academics who are not grounded in the real world. Bring back Greenspan."
Douglas Duncan, Mortgage Bankers Association: " I am surprised that the statement did not reflect a shift to neutrality. Some indicators would seem to signal that the downside risks are somewhat greater than reflected in the statement."
Lincoln Anderson, LPL Financial Services: "I believe the Fed should have cut rates. Not because of housing, but because the real interest rate is getting too high. With core PCE inflation below 2%, the real Fed Funds rate is now 3.3%. That is a bit high and a modest rate cut now would, in my opinion, bring monetary policy back to balance."
Lou Crandall, Wrightson ICAP: "This statement gives the Fed maximum flexibility in September -- both in terms of rates and language. Despite the slight inflation bias, the statement clearly leaves the door open to a rate cut if conditions deteriorate. Also, the statement is now set up to allow the Fed either (1) to move to a truly neutral statement in September if economic prospects are modestly softer or (2) to revert to the previous language by dropping the reference to increased downside risks if conditions improve."
Clare Zempel, Zempel Strategic: "Risk-repricing is rampant but real interest rates seem too low to define a broad liquidity or credit crunch. Real rates and valuations seem too low for a recession or a bear market to take hold. The economy has been strong outside housing, suggesting that the Fed has not been too restrictive and that it should not be too quick to activate a 'put' to placate the alarmists."
John Lynch, Evergreen Investments: "They're now forced to rely on the law of supply and demand to battle inflationary pressures. If they hike, it hurts housing and the credit markets, but if they ease, the potential for inflation increases. I'm glad I'm not one of them!"
David Resler, Nomura Securities International: "The FOMC has maintained an expectation that growth is 'likely to ...expand at a moderate pace over coming quarters' while also maintaining an expectation that inflation would moderate over time. Real GDP has grown at a 25 rate since last Q3 -- well below potential -- and the Fed expects that to continue. Meanwhile, core inflation HAS moderated as expected. It strikes me as strange that policymakers are more concerned that inflation won't slow as expected (even though it already has) than they are that growth might continue to fall short of expectations -- as it has done for a full year. The perfunctory reference to tight credit conditions for 'some' also seems at odds with the facts. For whom have credit conditions not become tighter? If it is the Fed's view that the market turmoil is not likely to threaten the macro economy, then it should say so more directly."
Ian Shepherdson, High Frequency Economics: "The fact that they explicitly alluded to the risk of slower growth, as well as mentioning the market turmoil, suggests to me they are quite worried - but not worried enough to change their central view, yet."
Diane Swonk, Mesirow Financial: "The Fed did exactly what it should do as a central bank. The problem is that financial markets still are having a hard time reading them. Transparency is irrelevant if market participants ignore the message."
Larry McMillan, McMillan Analysis: "If the market was rising, the bears would certainly not get any sympathy if they invoked a desire for the Fed to RAISE rates to help them out, so why should we listen to the bulls imploring the Fed to LOWER rates during a falling market?"
Frederic Dickson, D.A. Davidson & Co.: "The Fed is trying to finesse its way out of the current credit crisis. We suspect jawboning won't lead to stabilizing the credit markets as well as it dampens broad inflation expectations. Rising unit labor wage pressure has left them between a rock and a hard place leaving the markets to take care of the current crisis in the credit markets. We see their action as prolonging credit and stock market volatility."
Paul Ashworth, Capital Economics: "The Fed largely stuck to its guns, but does appear to have been rattled by the recent turmoil in financial markets. We still expect that a deteriorating labour market will force it to cut rates to 4.75% by the end of this year."
Peter Hooper, Deutsche Bank Securities: "The length of the Fed's statement has grown in proportion to the complexity of the situation they face."
Stuart Hoffman, PNC Financial Services Group: "The bottom line is that the 'inflation bias' is more nuanced or muted which is intended to signal to the markets that the FOMC has the flexibility to respond if the financial market problems seriously impact the housing market and the 'solid' growth in jobs and income."