It's all too easy to talk this market down

08/18/2011 10:30 am EST


Jim Jubak

Founder and Editor,

“Loose lips sink ships” posters used to warn during World War II in an effort to prevent idle talk that might sabotage the war effort.

Maybe an updated posted needs to go up at the U.S. Federal Reserve. Because comments by two regional Fed presidents arguing that the Fed needs to tighten money supply rather than take measures to prevent a slump from turning into a double dip have roiled markets in Asia, Europe, and the United States. Japan’s Nikkei 225 and Hong Kong’s Hang Seng are each down 1.3% today.  The Shanghai Composite Index is down 1.6%.

The financial markets didn’t pay much attention when Texas governor and Republican presidential aspirant Rick Perry warned Fed chairman Ben Bernanke that trying to stimulate the U.S. economy 14 months ahead of the 2012 election was ‘treasonous.” Just another day on the campaign trail. The next day Perry claimed that global warming was a hoax cooked up by scientists looking to profit from the scare. Take it all for what it is.

But yesterday, August 17, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in a radio interview that the August 9 decision by the Fed pledging to keep interest rates near zero until mid-2013 was “inappropriate policy at an inappropriate time.”

And Dallas Fed president Richard Fisher said in a separate statement that the Fed shouldn’t run monetary policy to bail out the stock market.

On the one hand, there’s no news here. Both Plosser and Fisher dissented from the Fed’s August 9 decision. So yesterday’s comments were merely restatements of well-known views.

On the other hand, their comments served to remind the markets that, whatever investors’ hopes, the Fed hasn’t agreed on a new round of quantitative easing to support the economy and financial markets. That reminder is an unpleasant truth to global financial markets that are in search of any shred of good news to justify a bounce, rally, whatever.

When the news flow as far as the eye can see (which this being Wall Street isn’t very far, remember) is dark, nobody wants to be told that any piece of good news might be a mirage.

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