Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.
Three key notes about Kevin Warsh’s op-ed in today’s Wall Street Journal.
First, it may be taken (by his reported closeness to the Fed Chairman) as Mr. Bernanke’s “by proxy” declaration of independence on interest rate policy, having now secured renomination from the President.
Second, it is also an advance warning that this Fed, unlike Greenspan’s, will not wean the economy off financial steroids in a series of quarter-point “baby steps”‘ but more like a “cold turnkey” cure. (Not because steroids should not normally be removed only gradually, but because when Greenspan did just that, we found that the financial community showed that they weren’t paying attention and danced on — in Chuck Prince’s famous phrase — until the quite bitter end.)
And thirdly, it can be taken as a warning to the trading markets not to get too far ahead of themselves in bidding up financial assets and commodities ahead of the recovery, lest the Fed find such behavior indicative that the markets are ready for that cold turkey cure. Perhaps the Fed, through Warsh’s message is even finding a way to let the air out of emerging bubbles at an early stage!
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