Monday, September 10, 2007

The WSJ Sums Up the Fed Governor's Speeches

For those of you keeping score at home:

Here’s a quick run-down of all the recent Fed speeches:

* Hawk St. Louis Fed’s William Poole, Sept. 6: “The extent to which it’s affecting the broader economy…I don’t think we know yet. We shouldn’t take for granted the assumption that the economy is about to take a nose-dive.”

* Hawk Atlanta’s Dennis Lockhart, Sept. 6: “So far, I have not seen hard or soft data that provide conclusive signs that housing problems are spilling over into the broad economy…In my view current readings of inflation represent progress, but not victory. I would like to see inflation sustained at a somewhat lower rate—with emphasis on “sustained.”

* Hawk Philadelphia’s Charles Plosser, Sept. 8: “Going forward, until housing demand picks up and some of the inventory of unsold homes is worked off, residential construction will continue to be a drag on economic growth. I expect this drag to diminish gradually but continue until sometime next year. I believe the most likely outcome is that economic growth will return toward trend later in 2008.”

* Dove San Francisco’s President Janet Yellen, Sept. 10: “I see significant downward pressure based on recent data indicating further weakening in the housing sector and the tightening of financial markets… should the decline in house prices occur in the context of rising unemployment, the risks could be significant… signs of improvement in underlying inflationary pressures are evident in recent data… past experience does show that financial turbulence can be resolved more quickly than seems likely when we’re in the middle of it. Moreover, the effects of these disruptions can turn out to be surprisingly small.”

* Hawk/Dove Mr. Lockhart, Sept. 10: Friday’s employment figures “clearly have to be taken very seriously,” but added that he “would like to see inflation sustained at a somewhat lower rate.”

To recap — that’s three speeches on the side of hawkishness, one that sort of straddles the middle (Mr. Lockhart, today), and another that is mostly dovish, although not strongly so (Ms. Yellin, today), which suggests that market players betting on Fed rate cuts would probably want to lean to the quarter-point area.

Personally, I have no idea what the Fed is going to do. However, there are a ton of positions out there.

There is something that I find extremely interesting -- and this is simply an observation. It seems that various Fed members have more latitude to speak their mind under Bernanke. We are seeing a fairly wide divergence of opinions expressed.

In addition, there does seem to be a concerted effort to demonstrate the Fed does not want to bail-out the Street if the damage has not migrated outside of the financial markets. That tells me they are very aware of the perception that people would have of them granting a pass to all of the stupid credit practices that have occurred over the last few years. I may be reading too much into that (or maybe I want to see that).