Bernanke won't drop 1/4 or 1/2. He will raise 25 basis points

All of the discussion centers around whether the Fed will ease by twenty five or fifty basis points.  Some few brave souls ponder whether Bernanke might leave things as they are.  I have yet to hear anyone suggest that he will surprise us all by raising interest rates.  But, that is precisely what I think he will do.

Bernanke is at heart an academic.  And they are, if nothing else, totally unpredictable.  He is also sensitive to the concern that he not be seen as predictable.  His last set of actions has set a pattern, showing his willingness to stem panic and crisis.  But he needs also to show toughness and independence from the market and from the hysteria that has gripped trading, especially, these last months. 

Add to that that the American economy, excepting housing, has been showing a lot of strength and that the economy is growing at or near 3% this quarter.  Consumers are still spending, companies hiring, and exports -- thanks to the weak dollar - climbing astronomically. 

What is not to like?   Why on earth would Bernanke drop rates?  Why would he even leave things as they are?  Why not regain his traction on fighting inflation?

He is going to surprise us all and raise rates.  There is a lot of logic to this argument, save that the surprise factor would almost certainly send the markets into a downward spin.  But, then -- if the last weeks are any indication -- they will come back almost as quickly.  i bet he will bank on just such reactions and take the rates up a quarter basis points.

 

 

 

Harry Greenleaf
Harry Greenleaf: Harold Greenleaf, BA, UCLA; MBA, UCLA is an independent financial consultant in Los Angeles. Please feel free to reach out with any questions on my articles at hgreenleaf@aol.com.

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Comments

  • marlene

    October 30, 2007

    Wouldn't that be something to behold?

  • jonathan

    October 30, 2007

    I hope this is a joke. There are absolutely no grounds to believe this!

  • D Sambol

    October 30, 2007

    He can't do that. He's got to bail Countrywide and the other financials out of this housing mess. He's a lightweight and we have him by the balls. He is going to take it down 50 bps. Just you watch.

  • Huffy

    October 30, 2007

    No, he's going to drop. No way rates go up.

  • bankinvestor

    October 31, 2007

    No he will lower rates, but by lowering rates he is going to create more worries about inflation by the bond traders which will push longer term Treasury yields higher. This in turn will bump up fixed 15-year and 30-year mortgage rates which in turn helps their profit margins of financial companies and banks who profit by a wider margin between short and long term rates. That's the Fed's goal right now. A steepening of the yield curve.

  • Rob Lowe

    November 01, 2007

    It seems to me two idiots at Fox news and CNBC are now in charge of setting Fed policy. Now we have Bernanke and Paulson with just one additional person they could do a remake of the Three Stooges.

  • Sam Cass

    November 02, 2007

    Guess you were wrong as I suspected. I agree with bankinvestor. The Feds trying to protect the banks. Is this good? Don't know.

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