“…. in light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary. The Committee will, of course, be carefully evaluating incoming information bearing on the economic outlook. Based on that evaluation, and consistent with our dual mandate, we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”
– Federal Reserve Chairman Ben Bernanke, in a speech in Washington D.C. today
At about 12:15pm EST Bernanke’s much anticipated speech, scheduled for 1pm EST, was apparently leaked and financial markets reacted powerfully. Stocks jumped and bonds sold off (SPY Intraday Chart).
The key quote is the one above and the key term “substantive”. That seems like code for a 50 basis point cut at the end of January.
But the initial move hasn’t held. Recall how markets surged on September 18th when Bernanke and Co. cut 50 – and continued to rise throughout the day, closing at the day’s high. The market reaction seems different today with many investors possibly taking the opportunity to sell stocks and get out of positions.