Tuesday, August 07, 2007

Fed Decision

No rate cut, Bernanke says inflation remains a bigger problem than credit issues:

Aug. 7 (Bloomberg) -- The Federal Reserve, keeping interest rates unchanged, said inflation is still the biggest danger to the economy while acknowledging that the economy may weaken.


Policy makers took account of threats to the economy's expansion while stopping short of saying risks are balanced between inflation and slower growth. Chairman Ben S. Bernanke and his team extended the longest freeze in borrowing costs in nine years, waiting to see how the decline in stocks and corporate bonds in the past three weeks plays out.


The mention of inflation as the ``predominant'' concern has appeared in each Fed statement since March and meeting minutes starting with last December's session.

The Fed statement comes less than three weeks after Bernanke delivered semiannual testimony to Congress, an event that usually sets the tone of central bank discussions for several months. He told lawmakers on July 18 and 19 that U.S. economic growth would pick up ``a bit'' and inflation recede.

Investor sentiment has shifted since benchmark stock indexes reached records in mid-July. The Standard & Poor's 500 Index dropped 5.7 percent from its all-time high on July 16 through yesterday.

The culprit: subprime mortgages that customers have been unable to repay, making securities linked to the loans less attractive. At Bear Stearns Cos., where two hedge funds failed in June, the firm's chief financial officer said Aug. 3 that the fixed-income market is in the worst shape in 22 years.

At least 70 mortgage firms have halted operations, gone bankrupt or sought buyers since the start of 2006. In addition, lenders such as Wells Fargo & Co. and Wachovia Corp. are raising rates and imposing stricter standards on some of their most creditworthy borrowers.

Jim Cramer and the rest of the shills on CNBC were not too happy with the statement. They wanted to hear that Bernanke was willing to "open the discount window" now that a credit crunch is hurting both corporations and individual borrowers.

But Bernanke said inflation remains his bigger concern.

Meaning Bernanke said "Fuck You" to Cramer and the rest who wanted the Fed to come in and save the markets from their self-created subprime mortgage mess, at least for now.

Frankly, I'm surprised.

I expected Bernanke to cave and give the markets exactly what they wanted.

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