Will Ben Bernanke Come Charging In On His White Horse And Save the Day…….and Our Market
August 12th, 2007 categories: Buying San Diego Real Estate, Local San Diego News You Can Use, San Diego Real Estate News, Selling San Diego Real Estate
Facing his 1st big crisis since he took over the reins 18 months ago, Federal Reserve Chairman Bernanke has a huge decision to make.
To keep pumping money or lower the short term interest rates.
A chief strategist for Charles Schwab said of the current situation,”Financial Crises, in the past when not accompanied with a recession have been good for the market but goes on to say that if this crisis deteriorates much more, we are going to suffer through a much more difficult market period”.
The greed from the Hedge Fund operators brought about the current nightmares found of the sub-prime market and if as it appears that Fannie And Freddie can’t help out, it is going to fall to Bernanke to lower the rates to try and re-stimulate the housing markets.
But will he? Will Ben Bernanke come charging in and save the day? That is the $64,000 question. If his past statements are any reflection of his future intentions, the experts say, ” Don’t Bet on it!”
Lowering the rates would help stimulate the Housing market if mortgage rates fall and that in turn would give the billionaire hedge fund operators and millionaire investors a real shot at selling the risky securities which are not selling as the new panic abounding the world financial markets, strengthens.
With short term rates having recently jumped because of this panic, it took a huge infusion of cash into the system from the Fed and other central banks around the world to bring it back in line to the 5.25% level. The Reserve Board does seem secure with that rate. They feel it keeps the economy going but minimizes the inflation risk.
Inflation risk seems to have been Ben Bernanke’s main focus but this new panic, if it continues, it will likely override his core issue of being in control of inflation. He is certainly aware that even a perception of a recession will draw too many to that conclusion and create an even greater liquidity problem, so he knows that he can not continue just take a too firm posture. The markets are looking to him to respond with lower rates.
The only other tool the Federal Reserve has in situations like these is the ” Rate Cut” and Bernanke has shown real reluctance in his past remarks but his head may be at least turned enough this time to see this crisis from a different perspective.
My prediction is that we will see not just one rate cut but two smaller rate cuts before years end dropping the short term rates below 5% for the first time in over 14 months.
