Monday, August 13, 2007

Bernanke's Bet/Blunder

After being blindsided by the weakness in the markets, and the non containment of the sub-prime contagion, the Fed has decided to pump some money into the system, to alleviate some of the pain. The bet is that this salve will solve the liquidity crisis.

And if it doesn't?

The Fed can save face by lowering rates because they'll be able to use the excuse of lowered inflation expectations with the tame CPI's numbers due this week. Lower gas prices will help. Then the Fed can pretend they aren't beholden to the market, or Cramer, or admit to themselves that they totally misread housing, the economy, or the consumer, at their last Fed meeting.

That's their bet.

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