FOMC Statement Changes

A few different ways to parse yesterday’s FOMC Statement:
(click each for larger view)

Via Bill King:


Download FOMC_Rel.pdf

Via the WSJ:


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What's been said:

Discussions found on the web:
  1. Bill King commented on Sep 19

    Moral Hazard R.I.P. We’re all Argentineans now!!! The S&P 500 is up > 10% since August 16!!!

    Once again the Fed has intervened for the benefit of the financially reckless, the speculators, and the asset
    inflationists at the detriment of savers and the prudent. That’s why the US overconsumes and undersaves.

    While stocks exploded in euphoria over the Fed’s 50bp dual rate cuts, discerning operators pondered what
    is it that Fed solons see that scares them so much that they voted unanimously for dual 50bp rate cuts with
    oil at an all-time high, gold at a 28-year high and the dollar near an all-time low.

    Ben has unleashed his helicopters. We were led to believe that Bernanke was an apostle of Walter
    Bagehot (“Lombard Street”) and targeted but penalizing relief. We now know that Bernanke is following
    Easy Al’s misguided footsteps. Ben, who until yesterday fought diligently to debunk the notion that he is
    ‘Helicopter Ben’ has given up that fight. Is there a very good reason for such apparent craven action?

    Bonds tanked and gold soared on Bernanke’s adoption of the ‘inflate of die’ policy.

    The die is cast. The Fed, US solons and other central bankers will risk an inflationary blow up instead of
    allowing the system to purge itself of a decade and a half of excesses.

    Though the cost of credit has been reduced, only the few will benefit. This is just the latest attempt to
    allow the elites and The Street to unload crappy paper on the gullible and the goofy.

  2. TheGuru commented on Sep 19


    In a word, “yep.”

  3. Sue commented on Sep 19

    These businesses are now in a position to do to the entire United States what they have been doing to municipalities and labor unions for years: threatening to pull up stakes and bankrupt us unless we offer them a stipend of some sort (e.g. a new stadium, acceptance of wages that impoverish us, – or, a rate cut if they feel it is warranted).

    To me, this serves to represent the moment when the nation-state finally fell behind global capitalism. And not only that – apparently these businesses now have the power to force the Fed to force other central banks to help out as well.

  4. SPECTRE of Deflation commented on Sep 19

    Blah…blah…blah…and then we killed the dollar. Forget about words and statements. They have made their choice, and now investors must make theirs. Watch what they do and not what they say. What they say is pure bullshit.

    Oil has a new high, gold has a price not seen in 27 years, and they tell us they are still concerned with inflation. LOL! Ya, OK.

  5. W.Edwards commented on Sep 19

    Given that Bill Poole has been the most vocal critic against bailing out Wall Street, the fact that he voted for this change indicates to me that the concerns about the US economy grinding to a halt are real.

    Wall Street has viewed this as a positive which may be true in the long-run but have not taken into account the many short to medium negative road bumps that still need to be overcome.

    The celebrations appear premature, moral hazard is going to make the next market downturn that much more ugly!

  6. SPECTRE of Deflation commented on Sep 19

    Exactly how do the rate cuts help these investors?

    Absolute Capital Halts Redemptions After Homm Quits (Update3)

    By Edward Evans

    Sept. 19 (Bloomberg) — Absolute Capital Management Holdings Ltd. will stop clients from pulling money from eight hedge funds with $2.1 billion of assets after co-founder Florian Homm quit.

    Investors will be asked not to remove cash for a year as the firm restructures the funds, Absolute Capital said in a statement today. Seven of the pools invested in over-the-counter U.S. stocks that can’t be sold at the prices at which the firm had valued them, affecting as much as $530 million of assets.

  7. Michael A commented on Sep 19

    Does anybody remember this from August? “St. Louis Fed President Poole warned recently against premature conclusions for the US economy from the financial market crisis. Only a “calamity” would justify a rate cut”. Some calamity. Tight credit markets and a stock market just off it’s highs.

  8. techy2468 commented on Sep 19

    i dont see a free fall in dollar, why??

    i see that the dollar is down like 4% against the euro in the last 3 months (and 1 month).

    it did not lose more than 1% after rate cut.

    so can someone explain when it will happen??

    right now i am clueless as to what is a good place for my money….looks like all kinds of currencies are going to lose their value (since they are all going to be pegged to USD)
    but all kinds of assets are under heavy speculations….hair cut of 10-15% is possible on any bad news..

  9. jkw commented on Sep 19


    That is precisely why the Fed can’t stop the coming recession. The Fed can only provide banks with more money, they can’t force anyone to spend it. The banks aren’t doing anything with the money because there isn’t anything worth doing with money right now. All assets are overpriced on a risk-adjusted basis right now. Consumers have overborrowed, so personal loans are a bad risk.

    The Fed has no power to prevent a recession. The structural problems in our economy are going to express themselves.

  10. Efficient Frontier commented on Sep 19

    Using the stock market as an indicator for the health of the entire economy and more importantly all people, seems to be more a recent phenomenon. It seems rather ephemeral creating and chasing something that is more virtual than anything else, certainly manipulated.

    Two things: No one talks much about the baby boomers retiring and the impact on old tired Mr. Market. Wasn’t that suppose to be starting in big numbers in 2008 or so. These people are being instructed to reduce risk, annuitize, cash out. Second, doesn’t this whole realty/mortgage debacle, and the Fed bailout, strengthen the argument against privatizing Social Security. At least when investors are snookered out of their 401k, they will have other sources of a multi-tiered plan. If we assume people are ignorant (if this is how the housing problem is being defined) when it comes to finances (i.e., buying a house), why would it be different in finances (i.e., retirement savings). I just think the Fed provided a great example why Social Security should not be privatized by their actions.

    PS: Anyone buy the book “The Coming Crash in the Housing Market”, by John Talbott, published in 2003 by McGraw-Hill.

  11. Karl Smith commented on Sep 19

    This turn around was not without merit and there is no reason to think it is the result of caivng.

    Just to repeat. I personally had been calling for hikes as late as the Spring. Overall I have been consistently more hawkish than both the Greenspan and Bernanke Feds. I have never called for a rate cut that didn’t happen. I have often called for hikes that didn’t materialize.

    In early Septemeber I switched to advocate a 50 bps cut now and 25 bps later depending on the Sep job reports. This is exactly what we got. This is not caving in to Cramer, it is accepting the reality of a credit crunch and the effects of the credit channel of monetary policy.

  12. Eclectic commented on Sep 19

    For the life of me, I simply cannot understand how any reasonable and rational person could conclude that the FOMC actions were justified… or successful, after viewing these charts/rates:

    My heavens… what were they possibly thinking about?… worried about?

    The very thing we need is a work-out of bad loans and/or transitions of those loans to permanent financing… and what has the FOMC done?… It won’t take much of this and those opportunities will slip away.

    Have they made bad paper any more negotiable?… no

    Have they facilitated better intermediation of the mortgage industry?… no

    Can somebody please tell me what good they have accomplished?

    I’m open to suggestions… I’m not saying they didn’t accomplish something worthwhile, but WHAT was it?

  13. Eclectic commented on Sep 19

    Well, Karl… why don’t you elaborate on just what they accomplished?

    Not fuzzy feel-good stuff, but give us some practical realistic metrics to back up what you claim?

    How’s the economy of the U.S. better today for the FOMC’s actions?

  14. Winston Munn commented on Sep 19


    I’ve been pondering this action since yesterday and am still unclear as to the motivation – you can rest assured the published remarks are Fed crap.

    It is true that the Fed since Greenspan has simply chased or ratified the 3-month T-bill rate, so that and further cuts down the road may simply be the explanation; however, I think it is deeper.

    Who borrows Federal Funds: Member banks. Who benefits from lower rates: Member banks.
    What market is in trouble: ABCP
    What is the cause: borrowing short and lending long.

    I think you see where I am going here – the entire process seems to have been the beginning of a rate cut sequence that will underwrite the losses of the off-balance sheet loans that cannot be re-financed in the short term ABCP markets – regular CP has not had a crisis, only asset backed.

    It is borderline nationalizing of the asset backed commercial paper market. It is an attempt to prompt risk-taking, but I doubt 50 bps will be enough to turn the tide and fully expect another 50 bps cut before the next meeting.

    Since when did Keynes ever say that government spending could eliminate the threat of recession? I’m not much of a Keynes fan, but even I know what the man said and it was that government actions could be used to pull a country out of recession or cool an overheated economy.

    We are no longer dealing with macroeconomics but the macropolitics of power – anything and everything, including reason, common sense, and good judgement will be sacrificed in order to hold onto power.

  15. Eclectic commented on Sep 19

    Winston… an auria you perform!

    On Keynes:

    He died before he could elaborate on just how we would recover from Keynesianism after its need is un-needed.

    He could’ve explained it if he’d lived, but no central bank could’ve understood it… and no government could’ve resisted it.

    Bernanke is a Keynesian, whether he knows it or not. Before his career is over, if he’s intelligent enough to understand it, he’ll eventually know this to be true.

    He’s going to have to re-write his books and papers… He’s going to have to apologize to St. Friedman… He’s going to have to say three Hail Friedmans… and he’s going to have to sit in the corner with a dunce hat that says “Caved.”

  16. Eclectic commented on Sep 19

    Uhhh, Winston?

    …sorry, overlooked this… but the motor trucker never told us how to chill an overload.

    He.. uh… he died.

  17. Winston Munn commented on Sep 19

    Eclectic –

    Perhaps I am extrapolating or simply relying on faulty memory then – either is a distinct possibility.

    However, I am quite certain of what the Fed said Wednesday: “Damn the dollar-holders! Full speed ahead!”

  18. stormrunner commented on Sep 19

    When sanity fails to explain circumstances, don the tin hat and tune into the insane.


    The increases in paper world wide should ultimately make labor cheaper. If it can’t be fixed in a paper trade, looks like we’ve already pretty much screwed our friends, maybe, just maybe we can put the surfs to work to fix it.

    We’ve gone global, Global Hazmat

    I believe that one has to wrap his mind around the “Big Picture” and the one being painted is maybe helping our buddies across the pond contain their mess of coarse, in part placated by our bad paper. This run on the banks is bad business.

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