Reading through the transcripts, one would be wandering what Harold James meant when he stated that Fed has been “continuing to serve American interests”. The transcripts are replete with examples where actions by Fed were not proactive but reactive to what the financial markets were dictating or expecting Fed to do.



For example the 21st January 2008 meeting minutes show, “At this point, the monetary policy expectations have priced in a lot of easing over the near term. As of Friday’s close, there were about 67 basis points priced in through the January meeting at the end of the month and about 110 basis points priced in through the March meeting (if you look at the April federal funds futures contract). There is likely more than that now given the decline in the equity futures market that we saw today. So the markets are expecting quite a bit from the Fed.”



“Markets are expecting quite a bit from the Fed”, cannot be the only basis for taking every action and what has been priced by the market stemming from its expectation cannot be the trigger for Fed action either, every time.

