November 06, 2008
Why Don't the Markets Like Rate Cuts Anymore?
Posted by David Zaring

Lawyers venture into the world of macroeconomics at their peril, but perhaps the Glom's savvy readers can help me understand the change in the aura of the world's beknighted central bankers.  Time was, when the Fed cut rates, the markets stood up and cheered like they were supposed to.  But that was the Greenspan era, and my sense is that Bernanke has not at all had the same luck with his monetary supply moves ... and that he wasn't getting the sort of rapturous responses the Fed was used to receiving even before the August phase of the financial crisis. 

Today the Europeans cut rates a little, and the British rates a ton (1.5%!  Incroyable!), and the markets over there reacted by collapsing 5-7%. 

What gives?  Cheap money alone can't solve a recession - but we already knew that.  But if banking is a confidence game, does that rule apply to central banking too?  I would have thought no (but see this), because central banks aren't levered.  Still, there's a pervasive sense of "you people can't help with your old hat rate cuts," in what I read.  If confidence has been lost in central bankers, whomever will we trust?

It apparently won't be a global financial crisis regulator, if the US has anything to say about it....

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