Archive for the ‘wall street’ tag
Fed Has Lowered Rates 1.25 Points in 8 Days #
The Economist argues that Mr. Bernanke and the Fed are doing their best to satisfy Wall Street. Sound like a “Greenspan put” to anyone else?
But not all indicators point to disaster. Orders for durable goods and a private payroll report were surprisingly good. That suggests the Fed’s boldness is driven more by policymakers’ second rationale, that of reducing the risk of a negative spiral from financial markets to the economy. Hence the decision to slash rates on January 22nd, in response to a global sell-off. Strikingly, the Fed statement on January 30th mentioned “stress” in financial markets before discussing the economy. In a dovish text, the central bankers left no doubt that they were most worried about the downside risks and would act in a “timely manner” to address them.
Judging by the price of Fed fund futures, investors expect the federal funds rate to be as low as 2.25% by the end of the year. That highlights the danger in Mr Bernanke’s new strategy. In trying to prevent financial-market calamity, the Fed may find itself pushed by Wall Street to leave interest rates too low for too long.
Broken Numbers Game #
The New Yorker’s James Surowiecki argues that conflicting (and imprecise) headline numbers that come in America’s official job creation and unemployment numbers leads to both confusion and unexpected market moves. From this, some valuable wisdom comes:
As many studies have shown, people don’t have an intuitive understanding of things like margins of error and random sampling; they prefer to focus on a single number, even if it’s falsely precise, and so end up overemphasizing the report’s headline number.Investors are also subject to the so-called “salience bias”—high-profile information is weighted heavily even if it’s flawed. That’s why market moves in response to government reports are often surprisingly big—especially when, as now, they seem to substantiate investors’ worst fears. At this point, the market is locked in a hard-to-break feedback loop: the fact that traders act as if the jobs report were definitive makes it so. A little information can be a dangerous thing.
(via brijit)