Uncle Ben: Polite, But Not Charming

In the statement that accompanied the Fed’s decision to hold rates steady today, Fed Chairman Ben Bernanke acknowledge the ongoing turmoil in credit markets but gave no hint that rates might be cut in response anytime in the near future.

The statement added a sentence to the paragraph on the economy and a phrase to the paragraph on policy:

Financial markets have been volatile in recent weeks, credit conditions have become tighter from some households and businesses, and the housing correction is ongoing [NEW].  Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters……

Although downside risks to growth have increased somewhat [NEW], the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.

Wall Street was expecting more.  We were expecting not only an acknowledgement but an inkling that he was prepared to be our hero and come to our rescue. 

But the tone suggests that the current conditions are not enough to warrant a rate cut and that they are contained within the credit markets as employment, incomes and the global economy remain strong. 

At this point, the Fed isn’t ready to do anything.  It’s still on hold.  That’s the tone. 

In response, the financials fell off a cliff (chart), down 2.6% within 20 minutes of the statement coming out.