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Where the Fed’s move matters most

Renita Jablonski Mar 23, 2009

Where the Fed’s move matters most

Renita Jablonski Mar 23, 2009


Renita Jablonski: A news conference about the plan to buy up toxic assets is set to start in just a couple hours. Today’s announcement comes on the heels of a major move last week by the Federal Reserve. The Fed’s buying up Treasuries and mortgage-backed securities — a.k.a creating money. A lot of people are still trying to figure out whether this decision to pour another trillion dollars into the economy will work.

Fortune Magazine’s Allan Sloan is still scratching his head. Allan, what did you think when the Fed said it was doing this?

Allan Sloan: Well, much of what I thought was unprintable and not to be repeated on family radio . . .

Jablonski: Yikes.

Sloan: But the major thing would have been, “Yech!”

Jablonski: Hahaha. OK, let’s couch that a bit. This was an action in large part to bring down mortgage rates. And we saw that happen almost immediately the very next day. So isn’t it working?

Sloan: Well, it’s working to bring down mortgage rates. What it’s doing, though, is it has I guess you would call it collateral damage. It gets people like me thinking the Fed may have lost its mind. More important, it gets people who have actual money — unlike, say, me — who are bidding up, at least the last we looked, bidding up the price of gold, bidding up the price of foreign currencies, bidding down the price of the dollar.

Jablonski: Well, Fed chair Ben Bernanke did try to ease some of the inflationary concerns. Do you think he did a good enough job at that?

Sloan: Who knows. They’ve been very, very imaginative, and who knows what else they may create. I don’t know, because if I knew, I’d probably be going out trying to make enough money off of what I think they’re going to do to offset the losses I have on the basis of what they’ve already done.

Jablonski: I hear you. Well, I mean, given all that imagination, was this type of an aggressive move necessary?

Sloan: I don’t know if it’s necessary or not. I have no way of knowing. It just makes me uneasy and the way they explained it did not really resonate with me. But I’ll say this for the millionth time: I’m not the audience that matters. No, the audience that matters are the people with big amounts of money that they trade. Any time the Fed has done anything to improve liquidity or anything like that in the markets, the markets are always applauding and jumping up and down because it makes money for them. The fact that maybe five or 10 years later, it’ll turn out that that was a mistake, they don’t go back and say that. I mean, they love Greenspan easing, when he eased the rates after the technology bubble burst. They were jumping up and down, go read the coverage. Now it’s, “Well, he set off the housing bubble.” But they didn’t say that then. They say that now after the fact.

Jablonski: Well either way, it is more wait and see, I guess. Fortune Magazine’s Allan Sloan. Thanks so much.

Sloan: You’re welcome.

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