Lots of saliva, no food yet

You get a different feel for the news while on the road - such is the case with all the Bernanke-talk of late. It seems that everyone is asking the same question - elected officials, USAToday, CNN, etc. - when is the Fed going to cut short-term interest rates?

After eighteen years with former Fed chief Alan Greenspan at the helm, it seems that lower rates are a near-Pavlovian response to market turmoil, as explained in this Wall Street Journal story($).

When Ben Bernanke was nominated to head the Federal Reserve in 2005, he promised to "maintain continuity with the policies and policy strategies established during the Greenspan years." But in handling his first financial crisis, Mr. Bernanke shows signs of a break with Alan Greenspan, the Fed's chairman from 1987 to 2006.

That shift is important in understanding why Mr. Bernanke hasn't cut the Fed's main interest rate yet, and it could alter investors' expectations of how the Bernanke Fed will function.
...
Mr. Bernanke may yet have to cut rates. But the longer he waits, the more likely he can break investors of the assumption that market convulsions lead to interest-rate cuts. There is evidence he is succeeding. On Aug. 16, with stocks plunging and debt markets in disarray, money manager Bridgewater Associates wrote in its widely read daily commentary: "Credit in the economy is shutting down, and the Fed needs to ease now."

By this past Tuesday, with markets having settled down, the same firm wrote: "If we were in the Fed's shoes, we certainly wouldn't be in a hurry to 'save the system' until there was more evidence that the system needed saving."

Those participating in the accompanying poll seem to like what they see so far:


In the end, current perceptions may matter little - in due time, the housing market will likely force the new Fed chairman's hand.