Leftist economist and author Doug Henwood, editor of Left Business Observer and host of a radio show on WBAI, comments on LBO-Talk about the quarter point Fed rate cut yesterday.
Wall Street was very disappointed this afternoon by the small size of the Fed’s interest rate cut – just a quarter-point – and the tone of the statement.
I’ll say. The Dow responded by dropping 112 points in one minute then kept falling.
For more than two years, Wall Street has consistently expected the Fed to be easier than it’s been – basically starting with the aftermath of Hurricane Katrina, when they hoped for rate cuts to counter the economic shock of that disaster. (Not for NO’ians – for themselves, of course.)
This presents a problem for populist analyses of the Fed that see the central bank as doing WS’s bidding. I’ve always thought the Fed had its eye on the broader class struggle and health of capitalism, and this only confirms that impression. They seem willing to stop their ears to the pained screams of traders and brokerage house economists.
Given Jim Cramer of TheStreet.com (who is a fine proxy for what the investment banks want) howling that the too little rate cut means some homebuilders and banks will go belly up, maybe that’s precisely what the Fed assumes will happen. Thus, they are being real capitalists rather than crony capitalists, and are letting market forces determine who survives.
A larger rate cut would actually exacerbate the credit crunch, since no one wants to loan money when interest rates are sinking and inflation is rising.