Give traders what they ask for and they still want more. No sooner had the US Federal Reserve delivered its sudden 75 basis point cut in the Fed Funds rate than some in the Chicago futures pits were moaning that Ben Bernanke had not eased monetary policy by a full percentage point.
The problem for the Fed is that for such moves to carry real heft it helps if they come as a pleasant surprise. The only surprise in yesterday's move was the timing - the market had already assigned a 75 per cent probability of such a move at the Fed's end-of-month rate-setting meeting.
Nevertheless, in spite of the initial curmudgeonly reaction, investors welcomed the Fed's largesse, trimming an opening 450-point loss on the Dow to a 150-point deficit by lunchtime in New York.
Considering the bloodletting in Asian markets earlier in the day, this was some feat, and was partly based on expectations that Mr Bernanke would knock another 25 basis points off rates next week.
But is the market right to imbue the Fed with such healing powers? Not according to Richard Bernstein, chief investment strategist at Merrill Lynch. He says investors are wrong to focus on interest moves by central banks because they only control the price of credit. "In simple terms, they cannot force financial institutions to either start or stop lending," he argues.
The Fed's inability to crimp private sector lending from 2004 to 2006 when it was tightening policy and the Bank of Japan's long-term failure to encourage lending in spite of rates nearly at zero are cited as examples of the monetary authorities' relative impotence when faced with entrenched attitudes.
The worry for investors is that today's wariness induced by the credit-crunch may prove to be another of those periods when lenders are immune to the Fed's inducements.
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