One of the reasons that the markets loved the Greenspan Fed was that it was
generally very predictable: for all that Greenspan was an expert at mumbling
incomprehensibly, the markets never seemed to be in much doubt what he would
do at any given meeting. Bernanke, by contrast, is full of surprises: first
the discount-rate cut, then the 50bp Fed funds rate cut, and now no
one has a clue whether he’ll cut again in October or not.
Predictability is not a bad thing in a Fed board: if you know what you’re going
to do, there’s really no harm in signalling that to the markets. Maybe as Bernanke
gets more settled in, his actions will be more predictable. But for the time
being, it seems that the markets will get a little bit nervous in the run-up
to any Fed meeting. Which might make Bernanke look good, ironically enough:
the markets might well rise whatever he does, just because he will have lifted
the cloud of uncertainty.
(HT: Mark
Thoma)