1115.org

The big news is not that the Fed produced another sizable interest rate cut again on Wednesday. The big news is what seems to dictate what the Fed does these days. Or if you will, who’s guiding the visible hand that guides the invisible hand of the market. AP’s Martin Crutsinger had an article about this yesterday that interested me strangely (it’s good to wince once in a while, but if you like, I’ll apologize).

In a brief statement explaining their decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that “financial markets remain under considerable stress.”

Forget how the economy can be so resilient, if the financial markets have been “under considerable stress” for some time. The important thing is that this is Ben Bernanke explaining why the Fed has been slashing interest rates. It’s to reduce the stress the financial markets have been under.

And what stresses financial markets more than anything else is disappointment. You see, they have a habit of getting their hopes up. And then if you disappoint them, boy, do the markets lurch and stumble. Tumble even. Which seems to increase the stress that Ben Bernanke is under.

Going into yesterday’s rate cut, the market had pinned its hopes on a manly half-point cut rather than a wimpy quarter-point one:

Financial markets, which had been hoping for a bolder half-point move, rallied on the announcement. The Dow Jones industrial average, which had been in negative territory shortly before the Fed action, climbed back into the positive range in the minutes following the statement, with the Dow Jones industrial average up by more than 70 points in the first half-hour of trading.

Economists said the Fed decided to move a half-point rather than a quarter-point because it did not want an adverse reaction on Wall Street.

So there you have it. If you think the market is skittish these days, you have no idea how skittish Ben Bernanke is about the market’s possible skittishness. If I wasn’t a lady, I’d say the market has Bernanke by the balls right now. And what’s more, now that AP has blabbed it all over town, the market knows it too. The invisible brain of the market decides what rate cut it wants. The invisible mouth of the market whispers it into Bernanke’s ear. And, because of the ever-so-slight squeeze with which the invisible hands of the market accompany that whisper, Bernanke feels obliged to deliver. Because otherwise the poor, dear, stressed market would tank, would it not?

“At this tenuous time, they did not want to disappoint the markets,” said David Jones, chief economist at DMJ Advisors.

Jones said he expected at least one more rate cut, probably a quarter-point, at the next Fed meeting in March or at the April meeting.

Jones, however, is not the market. So don’t bet on a quarter point cut just yet. Don’t bet on it happening at the next scheduled Fed meeting either. Now that the market has recognized what it has Bernanke by, look for it to dictate not only by how much interest rates should decline, but also when.

Bernanke practically issued the market an engraved invitation to be sure and let him know when next it wants him to do what:

In its statement, the Fed said that “downside risks to growth remain” and pledged to “act in a timely manner as needed to address those risks.” That was seen as a pledge to cut rates further if the economy continues to weaken.

Never thought I’d see the day when the Fed chairman would fawn over the markets, and bat his eyelashes, and simper: “Is there anything I can do for you? Anything at all?”

When poor old Adam Smith coined the phrase “the invisible hand of the market”, I doubt very much that he was thinking of the hand that invisibly holds the reins of the Chairman of the Federal Reserve Board. But, thanks to Bush’s famously resilient economy, and its n consecutive quarters of growth, and maybe the spinelessness of the current holder of that position too, that’s what that hallowed phrase seems destined to mean today.