Tuesday, December 18, 2007

FED and Santa Claus (fg)

This is the link Kenneth Rogoff tries to set in a recent comment on FED policies and market interests (A similar article was written in September available at Project Syndicate). To him, the FED is not allowed to play Santa Claus which means nothing else than giving the presents markets demand for a few months.
Markets are right to be concerned about recession risks, but there is an awful lot of whining mixed in here. After all, most traders' year-end bonuses stand to benefit a lot from an even softer Fed policy stance.
Let us face it. Most investors think a good central bank should always drive as fast as it can above the economy's speed limit without crashing or breaking the inflation speedometer. Never mind inflated asset prices and higher inflation expectations that sow the seeds of a later crisis.
Finally, he concludes

[..] as long as trend growth stays weak and housing prices keep dropping, great clarity [about FED's objectives] alone is not going to make markets happy. Markets do not want to see academic robes on the Federal Open Market Committee; they want Santa Claus suits.

Personally, I would rather see the members of the FOMC wearing the suits of Santa's Little Helper, i.e. Knecht Ruprecht, and meting out whippings for those crying wolves in consideration of their shrinking bonus prospects.