Friday, September 21, 2007

What spooked the Fed?

As many observers have noted, even though the Fed cut interest rates by an unexpectedly large 50 points, long term interest rates are going up. I don't know why this is, but perhaps investors took this larger than expected cut to be a bad sign, and that the Fed knew things were even worse than they appeared. Clearly when Bernake called the reserve banks, they said things that scared him.

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