The Hawks On The Fed Are Fighting Back

Two important members of the Federal Reserve are coming out and expressing their dissent today, especially Dallas Federal Reserve President Richard Fisher. Fisher came out and made comments earlier that essentially told investors you are on your own. Fisher, towards the end of his prepared remarks, said, "In the interest of full disclosure, I should add that I was also concerned that just by tweaking the language the way the committee did, our action might be interpreted as encouraging the view that there is an FOMC so-called “Bernanke put” that would be too easily activated in response to a reversal in the financial markets. For those of you unfamiliar with the expression “Bernanke put,” or more generally, a “central bank put,” this term refers to the concept that a central bank will allow the stock market to rise significantly without tightening monetary policy, but will ease monetary policy whenever there is a stock market “correction.” Given the extent of the drop in the stock market leading up to and following Standard & Poor's downgrade of U.S. debt, combined with the FOMC's commitment to hold short-term rates near zero until mid-year 2013, some cynical observers might interpret such a policy action as a “Bernanke put.” My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors. I believe my FOMC colleagues share this view." This is the first time in my mind that the Federal Reserve has ever talked about the “Bernanke put.” These are extremely harsh words, with Fisher questioning Ben Bernanke's decision to keep rates near zero until mid-2013. He also just told investors and traders we are not holding your hands, and you should not expect this anymore. It almost seems as if a battle field is being drawn on the Fed, with the hawks and the doves potentially going to war soon over monetary policy. Many traders expected some form of a third round of quantitative easing to be announced at Jackson Hole, Wy. at the end of August when the Federal Reserve gathers for its annual retreat. It announced QE2 there last year, and there is hope that the same thing happens this year. This comes after Philadelphia Federal Reserve President Charles Plosser made some strong comments earlier this morning. He also dissented in the last vote, along with Fisher and Minneapolis Fed President Narayana Kocherlakota. Plosser said the Fed reacted too quickly to recent economic data, and said that the economic data does not signal dire predictions, despite the fact we have seen a slowdown in some of the most important economic data, such as PMI, and ISM. He also said, "There is a price to be paid" regarding monetary policy. Some very harsh words from two very influential members of the Federal Reserve.