The Man who can Change the Market’s Tone – Bernanke

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Aug 20 2007
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With the exception of China, almost all the stock markets worldwide depend very much on U.S. Wall Street. The Wall Street in turns depends on the internal American’s economy data of which depends on one person who set the tune of the financial pulse. This person is said to be more powerful than the President of the United States. For a very long time, we were being fed with the name synonym with the master who dictated the direction of the financial market – the Federal Reserve chairman, Alan Greenspan.

Ever since the baton was passed down to his new student, Ben S. Bernanke, the new master seems to enjoy his tenurer till the month of August 2007. For multiple times, Bernanke had consistently re-used the same phrases and refused to back down from the calls to cut the interest rate. However the man was put to test when the subprime mortgage issue crawls out to the sunshine to expose itself.

ben bernankeOn Aug 7th, the Fed said in a statement that it was watching the housing meltdown with concern, but that it believed the broader economy was on a steady path of growth. The interest rate was unchanged and the markets continued to rocks. Ten days later (Aug 17th), the Fed surprisingly lowered one of the two interest rates it controls and issued a statement expressing concern about the markets and the possibility of a downturn in the economy.

It was reported by New York Times that Bernanke was believed to be the mastermind for both flip-flop statements. Bernanke who might be facing his greatest challenge since taking over as Fed chairman in February 2006 is now being watched under microscope if he’s the right man for the position after all.

Bernanke received both praises and criticisms on the latest moves. Some said Bernanke might have misread the market’s signals and acted too timidly when the statement on Aug 7th which gave a rosy outlook was issued. By changing the tone ten days later, the credibility of the Fed is being questioned.

Nevertheless some who stand behind Bernanke said when the facts changes, the Fed chairman had to change his mind. The former chairman of Princeton’s economics department who earned his doctorate at the Massachusetts Institute of Technology and an undergraduate at Harvard University has written extensively about Great Depression. Ed Yardeni, president of Yardeni Research, said that Mr. Bernanke’s studies of the Depression and other financial catastrophes have taught him that the Fed’s role is not only to keep inflation in check, but also to deal with upheavals in the markets.

Whatever it is, the market will shows in the next couple of weeks if the measures taken so far are sufficient to tame the anxiety. If not everyone will be watching Bernanke on his next action plan which could either push him to stardom or perish into something worst than anyone could imagine. The bone thrown so far might not be sufficient to satisfy the market and with the Fed’s next meeting not scheduled until Sept. 18, investors may choose to stay jittery.

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