One Speech Two Interpretations

In Unable to Borrow I mentioned a speech by the Fed's Poole. Minutes later a second version of the same story hit the news. Here are the headlines and stories.

From MarketWatch

Fed won't ride to rescue of upset markets: Poole
Last Update: 1:30 PM ET Jul 31, 2007

Financial markets understand that the Federal Reserve will not respond quickly to a typical financial market upset such as last week's sharp stock sell off, said St. Louis Fed President William Poole on Tuesday. Poole said the best policy for the Fed in cases of market turmoil is to be cautious and try to understand the reasons for the volatility. The Fed should only act "in due time" if evidence accumulates that the market upsets threaten to cause price stability or low unemployment, or when financial-market developments threaten market processes themselves, Poole said. "If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second guess the Fed than trying to understand what is happening to business and household behavior," Poole said in a speech prepared for delivery at the University of Missouri.

From Reuters (14 minutes later)
Fed will act on market slide if warranted: Poole
Tuesday July 31, 1:44 pm ET

The U.S. central bank is still examining the impact of last week's stock market slide, but would act if this threatened its goals for inflation or employment, a top Federal Reserve official said on Tuesday. Poole said the Fed should not add to the uncertainty by making its own policy less predictable. But if it was convinced about the scale of the risks, it would not stand idle.

"The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate," he said.

"Most of these upsets stabilize on their own, but some do not. I'm not saying that the Fed should ignore what happened last week - we need to understand what is happening," he said.

Poole also said the decline in long-term interest rates last week as investors sought the sanctuary of U.S. Treasury bonds had helped to stabilize financial markets. He said that this was thanks to well-anchored inflation expectations.

What a difference reporting makes. Here is the key sentence:
"The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate," he said.

Essentially the Fed views a falling market as a threat. Of course a rising market, no matter how reckless or speculative is not a threat. Such is the nature of the misguided policies of the Fed that constantly blows bigger and bigger bubbles to cover up its own mistakes.

To top it off there is enormous hubris by Poole to think the Fed can control the market. See Can the Fed control prices? for a discussion of how the Fed is not really in control of prices or anything else.

Meanwhile another Bear Stearns hedge fund is in trouble.

15:22 *BEAR STEARNS FACES LOSSES FROM THIRD HEDGE FUND, WSJ SAYS
15:22 *BEAR STEARNS FUND HAS $900M IN MORTGAGE INVESTMENTS, WSJ SAYS
15:28 *BEAR STEARNS HALTS REDEMPTIONS ON ABS FUND, SPOKESMAN SAYS
15:28 *BEAR STEARNS FUND HAS $900M OF ASSETS UNDER MANAGEMENT
15:29 *BEAR STEARNS SAYS SUBPRIME LESS THAN 1% OF HEDGE FUND ASSETS
15:29 *BEAR STEARNS SPOKESMAN SAYS HEDGE FUND HAS NO DEBT
15:30 *BEAR STEARNS SPOKESMAN SPEAKS IN TELEPHONE INTERVIEW
15:31 *BEAR STEARNS SAYS HEDGE FUND REDEMPTION REQUESTS ROSE IN JULY

Six Questions

• Want to stop serial bubble blowing?
• Want to get rid of the Fed and its misguided policies?
• Want to get rid of the IRS?
• Want to restore sound monetary policies?
• Want to restore sound fiscal policies?
• Want a currency backed by gold as the constitution says?

One Answer

Vote for Ron Paul.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/