Skip navigation
Federal Reserve Video Gallery
CNBC's Steve Liesman looks into whether Bernanke will buoy the buck. Richard Bernstein, of Bernstein Capital Management,...
Euro zone October inflation was confirmed at -0.1% year-on-year Monday, in line with forecasts. “There is not an inflati...
CNBC's Maria Bartiromo discusses what to expect next week in the financial markets.
CNBC's Bill Griffeth looks ahead to next week's top business and financial stories.
CNBC's Bill Griffeth discusses the week's top business and financial stories.
Watchlist Sponsored By :


Current DateTime: 06:52:49 16 Nov 2009
LinksList Documentid: 24355697

FEATURED QUIZZES


Current DateTime: 06:52:49 16 Nov 2009
LinksList Documentid: 33793611
  • How Much Do You Know About Green?

      Green has become part of our everyday lives. Green is everywhere-- energy, clothing, food, housing, transportation. It's a big business and a global business.

  • The Billionaire BFF's

      Philanthropists. Bridge partners. Hockey players. Which responses are based on facts from Buffett's and Gates' real lives?

  • The Many Myths of Coca-Cola

      Can you tell which statements are true, and which ones are just rumors?


Current DateTime: 06:52:49 16 Nov 2009
LinksList Documentid: 24890560
  • Winterizing Your Portfolio

      If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.

  • Investor's Guide to Real Estate

      Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.

  • Alternative Investing

      Stocks and bonds? Sure. But it's a big world out there for investors.

powered by digg
By: Albert Bozzo, Senior Features Editor | 30 Jan 2008 | 04:18 PM ET
Text Size

The Federal Reserve cut interest rates another half point Wednesday, but economists are divided about whether its accompanying policy statement will successfully manage market expectations

Having slashed its federal funds rate three-quarters of a point just a week ago, the Fed used much of the same language this time around in cutting both the funds and discount rates. But that statement also drew varying interpretations of what was next to come from a central bank that has surprised market watchers more than once in recent months..

“I think it is completely neutral,” said Mark Rogers, senior U.S. economist at econoday.com, who thought the Fed might signal a pause in its easing campaign.

Ben Bernanke
Mary Altaffer / AP
Federal Reserve Chairman Ben Bernanke.

“This policy statement struck the right balance, “ countered David Resler, chief economist at Nomura International, adding the statement implies the Fed won’t have to wait for the FOMC meeting to move if conditions warrant. 

The Fed next meets March 20-21, which means another long gap between regularly scheduled meetings, much like the December-January period.

In its statement Wednesday, the Fed once again referred to a downturn in the housing market and weakening labor market, making it clear the risks to growth were its major concern.

In a subtle departure, however, the central bank appeared to soften its description of the weakening economy, reverting to the “downside risks” phrase in its December statement rather than perpetuating the “appreciable downside risks” used in its statement last week when it made a rare intra-meeting cut.

Some economists expected as much. After the fact, Rogers suggested deletion of the word means "there's been improvement in the financial markets," not the real economy.

Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, also noted the deletion, saying it was an attempt to "water down" the language but added the continued mention of "these downside economic risks telegraph the Fed's intent to move again at the upcoming March meeting all things being equal."

For inflation hawks there was little reason for cheer. Like last week, the Fed devoted one sentence to inflation--versus two in its December statement--and failed to even mention key phrases such as “inflation risks remain” and  “foster price stability.”

Even before the Fed's latest rate cuts, some economists expressed concern that the central bank has to some extent taken its eye off of inflation.

“You're not going to get relief on the inflation side,” warned Robert Brusca, chief economist at Fact And Opinion Economics.

Once again the Fed said it "expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."

“I find it disconcerting, “ said Rogers, adding that the Fed's latest statement clearly shows it is “relying on its economic forecast,” the next version of which is released Feb. 20.

The latest cut puts the federal funds rate at 3.00 percent, far from its rate of 5.25 percent in August, when the credit crunch and weakening economy first seemed to get the Fed's attention.

Brusca says the Fed is being "aggressive in an unprecedented way."

In CNBC’s latest “Trillion Dollar Snap Survey”, roughly four out of five respondents said the Fed made the right decision, but only 4 percent would grade Bernanke’s overall performance an “A”.  (See full results)

This comes after the Fed has been also accused of being both behind the curve and kowtowing to Wall Street. Wednesday's statement mentioned financial markets "under considerable stress", before qualifying economic conditions, suggesting more of the latter.

"Today's move was made for Wall Street, but the move in March may be more dependent on the state of the real economy, " concluded Rupkey, who is among the many economists who say it is too soon to say a recession is imminent or already underway.

Prior to the the rate cut, some economists were saying Bernanke needed to send a clear message about what the Fed thinks about the economy and what it might do about it. That may still be unclear in the FOMC's action and statement Wednesday.

"The Fed is still groping around the economy," said Rogers. "We expect more from the Fed but the Fed realizes it's very difficult to get a good pulse on the economy right now."

© 2009 CNBC.com
Tools:
Print EmailAdd This share icon
  • digg share

CNBC HIGHLIGHTS

  • Warren Buffett and Bill Gates spoke to Columbia students, and Buffett made the students a startling offer.
  • Brian L. Roberts
  • For the chief of cable company Comcast, growth has been about making deals – generally very large deals.
  • Some companies may start using insurance to shift carbon risk from their balance sheets to maybe... yours?
  • The president and founder of Genesis Today wants to improve America’s health, and thinks Wal-Mart can help.
  • If a terrible driver on your morning commute has you feeling like you want to scream, check this out.
ADD COMMENTS
Remaining characters


Current DateTime: 06:46:07 16 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 02:13:57 16 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 02:13:57 16 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 02:13:57 16 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters